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

US Capitol North Side Construction Night Washington DC ReflectioFIRM UPDATE

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

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

TRADE IS A TWO WAY STREET

“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”

PRESIDENT RONALD REAGAN, JUNE 28, 1986

US CHINA TRADE WAR SEPTEMBER 8, 2016

Dear Friends,

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

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

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

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

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

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

Best regards,

Bill Perry

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

President Obama went to state:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

As the GAO report states:

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

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

The GAO Report concludes at page 56-47:

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

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

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

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

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

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

The following are key points from these new regulations:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

SOLAR CELLS FROM CHINA CHINESE VERSION OF THE ARTICLE

中国进口太阳能电池反倾销案即将到来的最后期限重返美国市场的机会

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

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

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

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

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

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

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

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

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

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

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

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

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

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

STEEL TRADE CASES

HOT ROLLED STEEL FLAT PRODUCTS

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

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

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

SEPTEMBER ANTIDUMPING ADMINISTRATIVE REVIEWS

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

 

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

Best regards,

Bill Perry

US CHINA TRADE WAR–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

NEW UPDATE JUNE 25, 2015 US CHINA TRADE WAR — TAA PASSES HOUSE– HEAVY LIFT OF TPP NEGOTIATIONS CONTINUES

US Capitol Dome Houses of Congress Washington DC“TRADE IS A TWO WAY STREET”

“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”

PRESIDENT RONALD REAGAN, JUNE 28, 1986

NEW UPDATE US CHINA TRADE WAR JUNE 25, 2015 —TAA AND TPA PASS CONGRESS AND GO TO PRESIDENT — NOW HEAVY LIFTING OF TPP NEGOTIATIONS BEGINS

Dear Friends,

On June 25, 2015, the House of Representatives passed the African Growth and Opportunity Act (“AGO”) by a vote of 286 to 138, which includes Trade Adjustment Assistance (“TAA”), and the bill, has been sent to President Obama. On June 24, 2015 the US Senate passed the Trade Promotion Authority (“TPA”) bill by a vote of 60 to 38 and President Obama has signed the bill into law. As the Senate and House leadership promised, both TPA and TAA are on President’s Obama’s desk at the same time.

Now the heavy lift begins. Now is the time for any US company that is having export problems with exports to the 12 Trans Pacific Partnership countries, specifically Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore or Vietnam, to bring these problems to the attention of US negotiators and also their Congressional representatives so the issue can be included in the ongoing negotiations.

On June 23, 2015, Prime Minister Shinzo Abe of Japan predicted that with the TPA vote TPP could be finalized in a month. That simply not going to happen. With all the negotiating objectives in the TPA bill, including currency manipulation, I firmly believe that TPP negotiations will go on until at least the end of the year and probably into 2016, an election year.

As Senators Hatch and Wyden stated on June 24th on the Senate Floor and Representatives Ryan, Levin and Sessions stated on the House floor on June 25th and below, this is just the beginning of the process. This TPP negotiating process has a very long way to go.

Best regards,

Bill Perry

TPA AND TAA NOW LAW—THE HEAVY LIFTING NOW BEGINS AS NEGOTIATIONS CONTINUE ON TPP

As stated in the Wall Street Journal and on the Senate and House Floor, the heavy lifting now begins on Trans Pacific Partnership (“TPP”). In light of numerous Congressional negotiating objectives, the TPP negotiations are going to take time and will not be an easy lift. Congress will be involved in the negotiations every step of the way so this will not be simple.

Anyone who thinks TPP negotiations will be finished in a month is simply wishful thinking. This is just the start of the process.

As the Wall Street Journal stated today on its June 15th front page:

The White House and Republican leaders notched a significant victory Wednesday with the Senate’s passage of divisive trade legislation, but the win kicks off a grueling, months long process to complete a Pacific trade pact that still faces domestic opposition and must win final congressional approval.

As Democratic Congressman Sander Levin, ranking member of House Ways and Means, stated on the House Floor today, the battle now switches to the actual negotiations and words in the TPP itself:

The debate these last weeks and months has been about how do we get a strong and effective trade policy and trade agreement. That debate only intensifies now. Supporters of trade promotion authority, T.P.A., sought vague negotiating objectives and passive role for Congress in the process was the way to go, in part because many on the majority side feel that more trade is essentially better no matter its terms or conditions. The opponents of T.P.A. wanted to ensure that T.P.P. negotiations were on the right track with no blank check to USTR and there are so many outstanding areas, where we are not satisfied with the status of negotiations, where we are uncertain of their outcome, now we can focus like a laser beam on those issues.

The argument about the process of T.P.A. is now behind us. And the challenge of the substance of T.P.P. smack in front of us. Automatic embrace of centuries’ old doctrines does not meet the challenges of intensifying globalization. So we will continue to shine a bright light on the critical issues like market access, state-owned enterprises, intellectual property and access to medicines, worker rights, environment, currency manipulation and investment provisions that could put at risk domestic regulations.

Our calls for improvements to the negotiations will only grow louder. In order for T.P.P. to gain the support of the American people, it will need to gain the votes of a much broader coalition of members of Congress than voted for T.P.A. the issue is not pro-trade versus anti-trade, but whether we shape trade agreements to spread the benefits broadly, including the middle class of Americans. . . .

Finally this bill includes a re-authorization of trade adjustment assistance. I’m an ardent supporter and introduced a bill earlier this year with Adam Smith to re-authorize it. I support 1295. To be sure this T.A.A. is not perfect, it falls short of the high water mark we established for the program in 2009. At a time when trade is expanding and is expected to expand even further with new trade agreements, we should be ensuring adequate funding for workers who lose their jobs as a result of trade . . . . T.P.A., T.P.P., T.A.A., it might seem like a word scramble, but going forward, T.P.P. to the American people will be about jobs and wages. They expect us to work hard to get it right as it is being negotiated, not simply leaving their elected officials with a yes or no vote after T.P.P. is done. We have a lot of work to do. And there is no ducking these issues.

As Republican Congressman Pete Sessions stated on the House Floor today, Congressional Representatives will have their chance and these negotiations are going to take time:

But I would respond and say to the gentleman, you’re going to have an opportunity and I can’t wait to get you invited to every single round of these and have you find time to go do exactly what you think members of Congress ought to be doing. Because in fact that’s the way the T.P.A. is written. . . . But this whole process — as soon as that takes place, the gentleman will have all the opportunity he wants to go and take part of every round of the discussions. But, you know, I don’t believe that’s what we were elected for. I don’t believe we were elected to go and have to do all the work that is described, that the gentleman said, to get back into the fight, to go do the negotiating. But he’ll be given that chance. He’ll be given that chance every single day. As soon as it’s signed by the President, he can go at it. He can maybe even just tell the President he wants to do this for a full time job. I don’t know. But he will have that opportunity and every member of this body will have that same chance. He and every member will have a chance to go and negotiate, be in the room, be a part of the discussion and make sure these — all these big multilateral corporations that he talks about that will be in the room, which they won’t be, because that would not be the right thing, there would be ethics violations, I’m sure the White House, the executive branch can notify him on that, but he will be allowed as a member of Congress.

So, Mr. Speaker, the things which are being talked about most as negative points about this bill, there’s already an answer to it. That’s what Republicans did. This is a Republican bill. This is about the authority of the House of Representatives, the United States Congress, to make sure we are involved. That has never been allowed before. Fast track is what we used to have. That’s what we did have. We now have a bill before us today which will help us complete the entire process, to make sure members of Congress are involved, not just the United States negotiators, but all the world will know . . . the parts about how we’re going to negotiate the trade deal and if it doesn’t come back that way, we’ll vote it down. Do we need to second guess them now today? I don’t think so. But if any member wants to be involved in this, they can just get on their plane and go wherever they want and get it done. And by law they’ll be allowed that opportunity.

All those pundits that say the TPP negotiations will be concluded in a month simply have not listened to the arguments on the House and Senate Floor. To see those arguments, watch CSPAN at http://www.c-span.org/video/?326700-1/us-house-legislative-business. To get a TPP, which will pass Congress, will require much more negotiation and a much longer time. The TPP negotiations will not conclude until the end of the year at the earliest and possibly 2016, an election year.

HOUSE VOTES TO PASS AGOA AND TAA ON JUNE 25, 2015 AND BILL GOES TO THE PRESIDENT

On June 25, 2015 the African Growth and Opportunity Act (“AGOA”) with Trade Adjustment Assistance (“TAA”) passed the House by a 286 to 138 vote and has gone to the President Obama for signature. As promised by House Speaker John Boehner and House Ways and Means Chairman Paul Ryan, TAA was brought to the floor of the House and passed. As Republican Congressman Dave Reichert, a co-sponsor of the TAA bill, stated on the House Floor:

Also included in this legislation is a renewal of trade adjustment assistance and I’m proud as Mr. Ryan said, to sponsor the House legislation to renew it because there is a need for this program. I believe increased trade is good for all Americans and it creates jobs. It makes America stronger. But I also understand that among and along the way, as we create jobs and trade and our jobs change over the next few years, along the way, some workers may need extra assistance and additional training. That’s why T.A.A. is so important. We’ve made great strides this past week by sending T.P.A. to the President’s desk . . . So now, Mr. Speaker, we must move forward, pass T.A.A. and AGOA today.

As Democratic Congressman Earl Blumenauer on the House Floor stated today, the Republican leaders kept their promise on TPA and TAA:

It’s at times trust is in short supply in this institution for a whole host of reasons but we were given ironclad assurances from the Speaker, from the President, from the Chairman, from Senator Wyden, Senator Hatch, Leader McConnell that T.A.A. would come back to this floor to be voted on. And I think it’s important that that has in fact occurred. Because to adapt, respond and grow a 21st century work force we need trade adjustment assistance. And what we have before us is an improvement over current law. It’s not as good as what we had in 2009, and I hope that we will be able to build on this and move forward, but this program has helped more than 100,000 Americans, including 3,000 of my fellow Oregonians who received job training and financial support. And there will continue to be winners and losers in the global economy. Whether we have trade agreements with countries or not like with pressures from China, it’s important that we provide this for our workers. With our vote today we do so.

US CHINA TRADE WAR JUNE 24, 2015 UPDATE — SENATE PASSES TPA AND IT GOES TO PRESIDENT FOR HIS SIGNATURE; TAA PASSES SENATE AND GOES TO THE HOUSE

Dear Friends,

As predicted, today the US Senate passed the Trade Promotion Authority (“TPA”) bill by a vote of 60 to 38 and it has gone to President Obama’s desk for signature.  Now is the time for any US company that is having export problems with exports to the 12 Trans Pacific Partnership countries, specifically Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore or Vietnam, to bring these problems to the attention of US negotiators and also their Congressional representatives so the issue can be included in the ongoing negotiations.

Yesterday, Prime Minister Shinzo Abe of Japan predicted that with the TPA vote TPP could be finalized in a month.  I suspect not.  With all the negotiating objectives in the TPA bill, including currency manipulation, I firmly believe that TPP negotiations will go on until at least the end of the year and probably into 2016, an election year.

As Senators Hatch and Wyden stated today on the Floor and below, this is just the beginning of the process.

Best regards,

Bill Perry

SENATE PASSES TPA AND THE BILL GOES TO PRESIDENT OBAMA’S DESK FOR SIGNATURE

After jumping over a major procedural hurdle on June 23rd, on June 24th the Senate passed the Trade Promotion Authority (“TPA”) bill by a vote of 60 to 38 and the House has sent the bill to President Obama for his signature.  Set forth below are some of the major statements by the proponents and one opponent of the bill.  To see the entire debate, watch CSPAN.org at http://www.c-span.org/video/?326775-1/us-senate-advances-taa-passes-tpa&live.

Trade Adjustment Assistance (“TAA”) also passed the Senate by an overwhelming vote of 77 to 23 votes.  The House is expected to vote on TAA tomorrow and that means it will go to the President by Friday at the latest.

All the Senators emphasized during the debate the importance of the Customs and Trade Enforcement bill going through Congress.  This bill will crack down on US importers that attempt to evade antidumping and countervailing duty laws by importing transshipped merchandise.  This Customs and Trade Enforcement Bill is directed straight at the problem of transshipment by certain Chinese companies around US antidumping and countervailing duty orders.  That bill will now go to conference in the House of Representatives to reconcile differences in the House and Senate bills.

Before the vote, Senate Majority leader Mitch McConnell stated:

Yesterday’s T.P.A. vote [was a] the long overdue victory for the American worker and the American middle class.  It wasn’t easy. Many thought it would never happen. We even saw corks pop in the facts optional lobby a few weeks ago, but that proved to be premature because here’s what we’ve always known about the legislation we’ll vote to send to the President today. It’s underpinned by a simple but powerful idea, for American workers to have a fair shot in the 21st century economy, it just makes sense to remove the unfair barriers that discriminate against them and the products that they make. Some may disagree. They certainly weren’t quiet in voicing their opinions. It’s okay if they don’t share our passion for ending this unfair discrimination against American workers. It’s okay if they would rather rail against tomorrow.

But a bipartisan coalition in the House and the Senate thought it was time for forward progress instead. We were really pleased to see President Obama pursue an idea we’ve long believed in. We thank him for his efforts to help us advance this measure. We thank all of our friends across the aisle for their efforts too. Senator Wyden, most of all. Over in the house, I commend Speaker Boehner and Chairman Ryan for everything they’ve done. It hasn’t been easy, and without them it wouldn’t have been possible. And of course let me thank Chairman Orrin Hatch for demonstrating such patience, persistence and determination throughout this process. He never lost sight of the goal, never gave up. The people of Utah are lucky to have him. The Senate’s work on trade doesn’t end today. I said the Senate would finish pursuing the rest of the full trade package, and it will. We’ll take another cloture vote today to that end. That process continues. But the key victory for American workers and products stamped “Made in the U.S.A.” comes today. The bill we’re about to pass will assert Congress’s authority throughout the trade negotiation process. It will ensure we have the tools we need to properly scrutinize whatever trade agreements are ultimately negotiated and it will make clear that the final say rests with us. We had plenty of bumps along the road. Frankly, a few big potholes too. But we worked across the aisle to get through all of them. That’s an example of how a new Congress is back to work for the American people. I thank everyone who helped us get where we are. Now let’s vote again to support the American worker and American middle class by approving the bipartisan T.P.A. bill.

Before the vote, ranking Democratic Senator Ron Wyden of the Senate Finance Committee emphasized that the TPA bill would go through along with a Customs and Trade Enforcement bill, which includes major changes to the US Customs and Trade laws, including a sharp crack down on transshipment around US antidumping and countervailing duty laws.  As I have stated many times on this blog, the transshipment issue is a burning issue in Washington DC and now it has resulted in legislation, which will be going to Conference Committee with the House of Representatives.  Senator Wyden stated today on the Floor:

Mr. President, today the Senate is taking major steps towards a new, more progressive trade policy that will shut the door on the 1990’s North American Free Trade Agreement once and for all. One of the major ways this overall package accomplishes this goal is by kicking in place a tough new regime of enforcing our trade laws.  . .  . And it has long been my view, Mr. President, that vigorous enforcement of our trade laws must be at the forefront of any modern approach to trade at this unique time in history. One of the first questions many citizens ask is, I hear there’s talk in Washington, D.C. about passing a new trade law. How about first enforcing the laws that are on the books? And this has been an area that I long have sought to change, and we’re beginning to do this with this legislation, and I want to describe it. And for me, Mr. President, this goes back to the days when I chaired the Senate Finance Subcommittee on International Trade and Competitiveness, and we saw such widespread cheating, such widespread flouting of our trade laws, my staff and I set up a sting operation. We set up a sting operation to catch the cheats. In effect, almost inviting these people to try to use a web site to evade the laws. And they came out of nowhere because they said cheating has gotten pretty easy, let’s sign up. And we caught a lot of people. So we said from that point on that we were going to make sure that any new trade legislation took right at the center an approach that would protect hardworking Americans from the misdeeds of trade cheats.

And in fact, the core of the bipartisan legislation that heads into conference is a jobs bill, a jobs bill that will protect American workers and our exporters from those kind of rip-offs by those who would flout the trade laws. And the fact is, Mr. President, when you finally get tough enforcement of our trade laws, it is a jobs bill. A true jobs bill, because you are doing a better job of enforcing the laws that protect the jobs, the good-paying jobs of American workers. And I guess some people think that you’re going to get that tougher enforcement by osmosis. We’re going to get it because we’re going to pass a law starting today with the Conference Agreement that’s going to have real teeth in it. Real teeth in it to enforce our trade laws. Foreign companies and nations employ a whole host of complicated schemes and shadowy tactics to break the trade rules. And they bully American businesses and undercut our workers.

So what we said in the Finance Committee on a bipartisan basis, that the name of the game would be to stay out in front of these unfair trade practices that cost our workers good-paying jobs. My colleagues and I believe that the Senate has offered now the right plan to fight back against the trade cheats and protect American jobs and protect our companies from abuse. It really starts with what’s called the Enforce Act, which is a proposal I first offered years ago that will give our customs agency more tools to crack down on the cheaters. Then we have a bipartisan, bicameral agreement on the need for an unfair trade alert. That’s another major upgrade that responds to what we heard companies and labor folks say again and again, Mr. President. What they would say is the trade enforcement laws get there too late. They get there too late. The plant’s closed, the jobs are gone, the hopes and dreams of working families are shattered. So what we said is we’re going to start using some of the data and the information that we have to have a real trade alert so that we can spot what’s coming up, get that information in our communities, in our working families and our companies to protect our workers. This unfair trade alert is another major upgrade in how we tackle, Mr. President, enforcing our trade laws. My view is that any bill that comes out of that enforcement conference, the customs conference, needs to reflect important American priorities. And that should certainly include smart protection of our environmental treasures. When our trade agreements establish rules on environmental protection, they’ve got to be enforced with the same vigor as the rules that knock down barriers for businesses overseas.  . . .

And it’s been too hard, too hard in the past for our businesses, particularly our small businesses, to get the enforcement that matters, the enforcement with teeth, the enforcement that serves as a real deterrent to cheating. So this legislation is our chance to demonstrate that strengthening trade enforcement, enforcement of the trade laws, will now be an integral part of a new modern approach to trade, an approach that says, we’re not part of the 1990’s on trade where nobody had web sites and iPhones and the like; we’ve got a modern trade policy with the centerpiece enforcing our trade laws. Our policies are going to give America’s trade enforcers the tools they need to fight on behalf of American jobs and American workers and stop the trade cheats who seek to undercut them. I strongly urge my colleagues to vote “yes” later today on the motion to send the enforcement bill to conference and work on a bipartisan basis, as we did in the Finance Committee, to put strong trade enforcement legislation on the President’s desk.  . . .

My friend and colleague on the Finance Committee, Senator Brown, offered a proposal that goes a long way, in my view, to strengthening our enforcement of key trade laws. It’s called leveling the playing field. . . .if you look at the Committee’s debate, level the playing field was a top priority for those in the unions, the steel unions and others, and it was a also a top priority for their companies. And so having this policy in the trade adjustment assistance is exactly the kind of bipartisan work that the American people want done. Business, labor, Democrats, Republicans — a strong record of evidence as to why it’s needed. This legislation is going to be the difference between steelworkers and paper workers being on the job or being laid off, because it ensures that the remedies of trade law — what’s called Counter-Veiling Duty Law, Anti-Dumping Law — is going to be available to workers and their companies earlier and in a more comprehensive way. It’s going to protect jobs, and it is a priority of both political parties.

I made mention how important this was to me. . . . Hugely important to my state. I said my first hearing was going to be on trade enforcement, and my good friends from the steel industry spoke about how American workers wants to see the Senate and the Finance Committee stand up for them and finally fix the shortcomings in our trade remedy laws. That’s what we have done now. Getting behind Sherrod Brown’s proposal to strengthen our trade laws, to stop unfair trade so that foreign companies do not undercut American workers and manufacturers ought to be an American priority, a red, white, and blue priority, a priority for every member of this body.  . . . The three programs — the trade adjustment assistance program, the health coverage tax credit, Senator Brown’s leveling the playing field act — are now moving through the Senate alongside legislation that creates new economic opportunities for impoverished countries in Africa and other places around the world.  . . . I urge all of my colleagues to vote yes to support these important programs when we vote later today.

Senator Sherrod Brown of Ohio speaking against TPA pounded on the enforcement bill:

Its authority to amend trade agreements, should not pave the way for a trade deal that looks like it’s going to be more of the same. Corporate handouts, worker sellouts. We’ve seen it with NAFTA. We saw a similar kind of move on PNTR with China where the trade deficit, our bilateral trade deficit has almost literally exploded since 2000, when this body and the other body moved forward on PNTR. . . . . We also have a responsibility to look out for the American worker who we know will be hurt by this deal. . . . Last, Mr. President, we have an opportunity in this bill today to once again support the level the playing field act to make sure it gets to the President’s desk. This will be the vote after this — after the T.P.A. vote. This vote is essential to protecting our manufacturers from illegal foreign competition. We can’t have trade promotion without trade enforcement. It shouldn’t be bipartisan, regardless of how you vote on T.A.A. we need to make sure our deals are enforced. Level the playing field to against unfair trade practices, it’s critical for our businesses, our workers who drown in the flood of illegally subsidized import. It has the full support of business and workers, Republicans and Democrats. . . . No matter where you stand on T.P.A. we should be able to come together to have enforce — enforceable laws. We have trade. We know these agreements cause wages to stagnate, we know these agreements cause factories to close . . . This is a terrible mistake we will make which we’ve made over and over and over and over if we pass this today. If we pass T.P.A. it’s the same mistake we made with NAFTA. Big promises, job increases, wages going up, bad results. We did it when we passed PNTR, when we passed CAFTA, the Central American Free Trade Agreement, with the Korean Free Trade Agreement, we’re about to do it again, shame on us. At least take care of workers if we’re going to pass this legislation.

Prior to the vote, Senator Orrin Hatch, Chairman of the Senate Finance Committee, called the TPA bill and accompanying trade legislation the most important bill to pass in the Senate this year.  Senator Hatch stated:

This is a critical day for our country. In fact I’d call it an historic day. It’s taken us awhile to get there, longer than many of us would have liked but we all know anything worth having takes effort and this bill is worth the effort. This is perhaps the most important bill we’ll pass in the Senate this year. It will help reassert Congress’s role over U.S. trade negotiations and reestablish the United States as a strong player in international trade.

Renewing T.P.A. has been a top priority for me for many years and as Chairman of the Senate Finance Committee, I am pleased that with the help of ranking member Wyden, we’ve been able to deliver a robust and bipartisan bill. It’s also been a high priority for the Senate Majority Leader. And thanks to his strong support and leadership, we’re one step away from completing this important task. This bill will help farmers, ranchers, manufacturers and entrepreneurs throughout our country get better access to foreign markets and allow them to compete on a level playing field. This bill will help give these job creators and the workers they employ greater opportunities to grow their businesses which will help create a healthier American economy. The business and agricultural communities understand the importance of strong trade agreements. That is why they came together in strong support of this important legislation. We’ve heard from all of them throughout this debate, and I appreciate their enthusiasm and support.

This has from the outset been a bipartisan effort, and I’m glad it remained that way. Throughout this entire debate here in the Senate, over in the House and here in the Senate again we’ve been able to maintain a bipartisan coalition in support of T.P.A., fair trade, and expanded market access for U.S. exporters. This is no small feat, Mr. President, and I’m appreciative of everyone who has worked so hard to make this possible. With this final vote, we can complete the work that we began so many years ago. But let’s be clear, passing T.P.A. is not the end of the story. It’s just the beginning. As Chairman of the Finance Committee, I intend to remain vigilant in our oversight as the administration pursues the negotiating objectives that Congress has set with this legislation. And if they fall short, I will be among the first to hold them accountable. But that is for another day. Today I urge my colleagues to help us finalize this historic achievement and join me in voting in favor of this bipartisan T.P.A. bill. If the vote goes the way I think it will today, today will be remembered as a good day for the Senate, the President, and the American people. Mr. President, once we vote to pass T.P.A., we will then be voting to invoke cloture on the Trade Preferences Extension Act of 2015.  . . . In addition to these preferences programs, the bill we’ll be voting on includes legislation introduced by Senators Portman and Brown to strengthen the enforcement and administration of our anti-dumping and countervailing duty laws. As I have noted in the past, anti-dumping and countervailing duty laws are among the most important trade tools we have to protect U.S. companies from unfair foreign trade practices. A number of Utah companies do benefit from these laws which allow them to compete against imports that unfairly benefit from support from foreign governments. I’m pleased we were able to include this legislation in the preferences bill. Finally, also included in this bill is an extension of the Trade Adjustment Assistance, or T.A.A. program. I think I’ve said enough about my opposition to this program here on the floor over the past several weeks. I won’t delve too deeply into that issue here. However, I do understand that for many of my colleagues who want to support T.P.A. and free trade, passage of T.A.A. is a prerequisite. From the outset of this debate over trade promotion authority, I’ve committed to my colleagues to working to ensure that both T.A.A. and T.P.A. move on parallel tracks. I plan to make good on this commitment and today will show that. That is why despite my misgivings about T.A.A. and with the entire picture in view, I plan to vote for this latest version of the trade preferences bill.

On June 23, 2015, former Senate Majority leaders Bob Dole and Trent Lott, in the Wall Street Journal congratulated Senator McConnell with pushing the TPA/trade legislation through the Senate stating:

It is a relief to see an institution that we both devoted so much of our lives to working again.  And it is an encouraging development for the country to see the Senate addressing big problems after years of inaction when it was controlled by Democrats.

JUNE 23, 2015 UPDATE

SENATE JUMPS OVER MAJOR PROCEDURAL HURDLE AND PUSHES TRADE PROMOTION AUTHORITY FORWARD

Dear Friends,

There was a major development in the Senate today on Trade Promotion Authority.  The Senate has jumped over a major procedural hurdle and moved the Trade Promotion Authority (“TPA”) bill forward. The final TPA vote will be tomorrow and it will pass because only a simple majority is needed. For US companies, this means now is the time to bring to the attention of US trade negotiators any export problems they have with the 12 TPP countries, specifically Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore or Vietnam, so the issue can be included in the ongoing negotiations.

The TPA fight has also raised questions as to whether the Free Trade Agreements can actually pass Congress or whether the US will slip backward into a protectionist mindset and no longer be a free trade leader.

If you have any questions about this topics, please feel free to contact me.

Best regards,

Bill Perry

SENATE PASSES TPA PROCEDURAL HURDLE AND MOVES IT FORWARD SO THAT THE TPA BILL WILL BE ON THE PRESIDENT’S DESK BY FRIDAY

On June 23, 2015, in a key procedural vote in the Senate, which required a minimum of 60 votes to pass, the Senate passed cloture 60-37 for Trade Promotion Authority (“TPA”).  To pass cloture and bring the TPA bill up for vote, the Senate requires 60 votes.  This means that tomorrow the Senate will have the final vote on TPA and only 51 votes are required for passage.

To recap since the last blog post, after passing the Senate on May 22nd, the linked TPA and Trade Adjustment Assistance (“TAA”) bills went to the House of Representatives.  Despite Herculean efforts by House Ways and Means Chairman Paul Ryan, on June 12th progressive Democrats and tea party protectionist conservative Republicans joined together to defeat Trade Adjustment Assistance and pursuant to the procedural rules kill TPA.  But pro-trade Republicans and Democrats in the Senate and the House worked with President Obama to come up with an alternative strategy and delinked TAA from TPA.

On June 18th, the House passed the TPA as a stand-alone bill.  See Paul Ryan’s statement on the House Floor at http://waysandmeans.house.gov/.

In response, today, June 23rd, the Senate with no extra votes, overcame the procedural hurdle of the 60 vote requirement, and voted to move forward with the House TPA Bill, which had passed on June 18th.  Tomorrow the Senate will vote on TPA and only a simple majority is required, which means TPA will pass and go to President Obama’s desk for signature by the end of the week.

One can see the Senate vote and the entire speeches up to and after the vote on Cspan at http://www.c-span.org/video/?326681-1/us-senate-debate-trade-promotion-authority.  Prior to the vote, Republican Majority Mitch McConnell stated in part:

The Bipartisan Trade Legislation Trade Legislation we’ll vote on today.  . . . It’s demonstrating that both parties can work together to strengthen America’s National Security at home and America’s leadership abroad.  Instead of simply ceding the future and one of the World’s fastest-growing regions from Chinese aggression and it’s proven that our friends can rally with us in support of 1.4 Million additional jobs in our country, including over 18,000 in Kentucky alone. . . .

Today is a very big vote. It’s an important moment for the country. It sets in motion the completion of a project we set out on literally months ago.  Completing work on all four of the bills reported by the Finance Committee. That is what my friend on the other side said they wanted and that is what can be achieved by continuing to work together.  . . .

So this is where we are, Mr. President. Let’s vote today. Let’s vote today to move ahead on T.P.A., an important accomplishment for the country. Then we can vote to move ahead on T.A.A. and AGOA and preferences. And then we can vote to move ahead on customs. If we all keep working together and trusting each other, then by the end of the week the President will have T.P.A., T.A.A., and AGOA and preferences on his desk. With Customs in the process of heading his way as well.

As Senator Orrin Hatch, Chairman of the Senate Finance Committee, stated in part prior to the vote:

On Trade Promotion Authority, the Senate has voted on this before each time demonstrating strong bipartisan support for T.P.P. — T.P.A. My hope is we can get a similar result in the Senate. We need to be clear about what is at stake. The United States is clearly negotiating a number of trade agreements with our most important trading partners in the world.  . . .

As we all know, most of the World’s consumers live outside of our borders.  95% of them. In addition, the vast majority of economic growth in the world is likely to occur outside of the United States over the next decade if our workers, farmers, ranchers and service providers are going to be able to compete in these growing markets, we must have open access to these markets and fair trade rules to boot.  Without strong trade agreements neither is possible.  When it comes to International Trade, we cannot stand still.  If we don’t lead and set the rules of the game, other nations will and our economy will be left behind.

The United States continues to be a leader in agricultural exports throughout the World.  In fact, we still export more agricultural goods than any other country.  In addition, the United States continues to boast an enormous manufacturing base which supplies consumers in every corner of the globe.  We also lead the World in technology, digital services and innovation.  Indeed not only do we lead the World in creation of intellectual property, America essentially created the modern digital landscape.  The U.S. also continues to lead in trade and services, exporting more than $700 Billion in services in 2014 alone.  That is more than twice as much as the United Kingdom, the World’s second-highest services exporter. . . .

This [TPA] bill, which is the product of a great deal of work and a lot of bipartisan cooperation, will have a powerful and positive impact on industries throughout our economy, on consumers and of course on American workers as well.  Mr. President, in an America that embraces International Trade, I believe even those individuals who encounter temporary setbacks can find new opportunities, can outwork, out-produce and out-innovate our global competition so long as the groundwork has been laid to give them those opportunities.  That is why we need strong trade agreements and that is why we need T.P.A. . . .

I am very appreciative of all the support we have received from members on both sides of the aisle.  We couldn’t have gotten this far without that support.  Now it is time to finish the work to pass this bill and get it to the President’s desk.  We need this bill to ensure that our constituents’ voices are heard in the trade negotiating process.  We need this bill to give our trade negotiators the tools they need to get a good deal.  And we need this bill to extend access to foreign markets so we can grow our economy and create good, high-paying jobs here at home.  That, Mr. President, is what this bill is all about and why we have been working on this process for so long.  We’re very close to the finish line, Mr. President.  We need just one more burst of energy and a few more steps to get us there.

I urge all of my colleagues who support free trade, open markets, and the advancement of American values and interests abroad to join me once again in supporting T.P.A. and working with me and with my colleague, Senator Wyden, to get all the pending trade bills passed in the Senate and signed into law. . . .

Democratic Senator Ron Wyden, ranking member on the Senate Finance Committee, stated prior to vote:

If you believe that those policies of the 1990’s fail to protect American workers and strengthen our economy, this is our chance to set a new course.  This is our chance to put in place higher standards in global trade on matters like labor rights and environmental protection, shine some real sunlight on trade agreements and ensure that our country writes the rules of the road.  The fact is in 2016, globalization is a reality.  The choice is whether to sit back and allow globalization to push and pull on our economy until in effect we face some of the same kind of dictates that you see in China.  So our choice is either to move now, get into the center of the ring and fight for a stronger economic future, protect our workers and promote our values or remain tethered to many of those old policies of the 1990’s.  . . .

China is certainly not going to take up the banner for American values in trade.  So if you believe America should stop a race to the bottom on labor rights, environmental safeguards and human rights, this legislation is our chance to lift global standards up.

Now, I want to talk for a moment about the economic potential of this legislation.  What we all understand we need to do is make things here, grow things here, add value to them here and then ship them somewhere.  My state knows how to make this happen, and so do many others.  About one out of five jobs in Oregon depends on International Trade.  Almost 90% of them are small and medium-sized, and what we know is that in many instances, those jobs pay better, but the fact is if our farmers want to sell their products in Japan – and this is true of agriculture all over America, Mr. President – a lot of our farmers face average tariffs of 40%.  That’s right.  If you want to export some jam to Vietnam, it will be marked up by 90%.  If you want to sell a bottle of wine – and we’ve got wine growers with prosperous businesses all over the country, you’ve got to fork over 50% of the value to the government.  So if you believe that other countries should open their markets to American exports, like the U.S. is open to theirs, this is our chance to bring down the tariffs and other barriers . . .

While the goal of enacting trade policies is a tool to give all Americans a chance to get ahead, trade adjustment assistance is an absolute must-pass bill.  And I am confident that it is going to get through Congress and the President’s Desk.  . . .

In my view, the Congress has an opportunity with this legislation to show that it can work in a bipartisan way to take on one of the premier economic challenges of our time.  Our job is to get past the policies of the 1990’s and move towards getting trade done right.  Colleagues, let’s open – let’s pry open foreign markets and send more of our exports abroad.  Let’s fight for the American brand and the Oregon brand against the trade cheats and the bad actors who are blocking our way.  And let’s raise the bar for American values and open up our trade policies to sunlight.  I urge all in the Senate to vote “Yes” on cloture today and to support this package as it advances this week and in effect we get three of the important bills done this week and set in motion the fourth.

After winning the procedural vote today, Senator McConnell stated:

Have voted aye on the Cloture Motion.  I want to say to our colleagues this is a very important day for our country. We’ve demonstrated we can work together on a bipartisan basis to achieve something that is extremely important for America. Not only when we confirm this trade promotion authority will we have the mechanism in place for the President to finalize an extraordinarily important deal with a number of different Asian countries, it will indicate that America is back in the trade business, it will also send a message to our allies that we understand they’re somewhat wary about Chinese commercial and potentially military domination and that we intend to still be deeply involved in the Pacific.  So I want to congratulate Senator Hatch, Senator Wyden.  This has been a long and rather twisted path to where we are today, but it’s a very, very important accomplishment for the country.

In response to the Senate vote, on June 23rd Paul Ryan, Chairman of the House Ways and Means Committee, issued the following statement:

I want to congratulate my colleagues in the Senate for voting to advance TPA. Only with TPA can the U.S. win a fair deal for the American worker in trade negotiations. And only with TPA can the U.S. rebuild its credibility on the world stage. I’m proud of my colleagues—in both houses, on both sides of the aisle—for working together to promote American trade. Some work remains to complete our trade agenda, but this has been a good day.

What is the effect of this vote on companies?  The bottom line is that by the week’s end President Obama will be able to sign into law Trade Promotion Authority and the negotiations on the Trans Pacific Partnership and the TTIP negotiations with Europe will continue.

For any company facing problems with exports to the 12 countries in the TPP, specifically Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore or Vietnam, now is the time to present your concerns to the trade negotiators in the US government and your Congressional representatives so the issue can be included in the ongoing negotiations.

WILL CONGRESS FOLLOW THE SIREN CALL OF PROTECTIONISM AND TAKE THE US BACK OR MOVE IT FORWARD TO RESUME ITS FREE TRADE LEADERSHIP

In light of the Senate vote today, one hopes that the Congress is moving away from the protectionist brink, but with a 60-37 procedural vote, when 60 votes were required, nothing can be taken for granted.  Listening to the anti-trade rhetoric in the US Senate and House of Representatives one is reminded of the original Greek tale in which Ulysses on his way back home had to pass the Siren rocks.  The Greek Sirens would cry so sweetly they lured sailors and ships to their doom.

Many Democrats and some Republicans are now listening to the Sirens of protectionism from the labor unions and other activists that the US should move inward, put America first and protect workers and US factories at all costs from import competition created by free trade agreements.  Although trade pundits acknowledge that TPA will pass, they argue that the Agreements, the TPP and TTIP Agreement with the EC, will die because the United States simply cannot withstand the protectionist attacks.  If that is true, the US will give up trade leadership and could well return back to the 1900s.  See the statement by Senator Bernie Sanders on June 23rd on the floor of the US Senate at http://www.c-span.org/video/?326681-1/us-senate-debate-trade-promotion-authority&live.

As John Brinkley, a Forbes commentator, stated on June 22, 2015, the day before the vote in the Senate on TPA:

Whether the Trans-Pacific Partnership lives or dies, it will probably be America’s last free trade agreement for a very long time.

No future Congress will want to walk into a war zone like the one now extant to pass a trade deal based on nebulous benefits. You may have noticed that the Obama administration has offered no estimate of how many jobs the TPP would create. Rather, its strategy has been to say that ratifying the TPP would empower the United States to write the rules of global trade and not ratifying it would cede that power to China. . . .

If the administration and Congress can’t convince people that free trade will facilitate those things – and they can’t – why should people care?

The next free trade agreement in the queue is the Trans-Atlantic Trade and Investment Partnership, or TTIP, which would connect the economies of the United States and the European Union. Given the amount of combat that’s been waged over the TPP, you wouldn’t want to bet on ratification of the TTIP.

Congressional leaders don’t want to put their members through another grueling trade fight like they one they’re in now, and they have no doubt made that clear to Obama. If the next president is a Democrat, he or she won’t touch the TTIP with a ten foot pole. A Republican president might ignore the opposition and try to get it done, but he’d probably lose. . . .

The TPP’s detractors have been louder and more prolific in attacking it than its proponents have been in defending it. And most of what they’ve been saying is exaggerated or wrong.  They’ll probably fail to derail the TPP. But they’ve probably already succeeded in killing the TTIP and any future trade agreement that the next president or two might envision.

For Mr. Brinkley’s entire article see http://www.forbes.com/sites/johnbrinkley/2015/06/22/farewell-free-trade.

Another commentator predicted that the real impact of the Trade fight will be on the Democratic Party stating:

Just as the tea party wing of the Republican Party has pulled the entire GOP to the right and hampered attempts at compromise on Capitol Hill, some now fear a similar dynamic is taking shape on the left. . . .

The revival of the trade package inflamed labor unions and liberal groups that had fought ferociously to block it, including by running ads against otherwise friendly House Democrats and threatening to mount primary campaigns against them. Unions say past trade deals bled American jobs and tanked wages. They argue that granting Obama the power to finalize trade deals that Congress can accept or reject, but not amend, would lead to more of the same, including the 12-nation Trans-Pacific Partnership the White House has worked on for years.

“Democrats who allowed the passage of fast-track authority for the job-killing TPP, should know that we will not lift a finger or raise a penny to protect you when you’re attacked in 2016, we will encourage our progressive allies to join us in leaving you to rot, and we will actively search for opportunities to primary you with a real Democrat,” Jim Dean, head of Democracy for America, said in a statement following Thursday’s House vote. . . .

http://apnews.myway.com/article/20150620/us–congress-democrats-ad8fbb804c.html or http://tiny.iavian.net/5mkd.

To illustrate the pressure on Congressional lawmakers, in discussing the situation with knowledgeable trade professionals, they mentioned that a Union sent demonstrators to the school where one Democratic Congressman placed his kids.

Why is the protectionist America first trade policy wrong policy?  Because all of “international/WTO” trade law is based on reciprocity.  What the United States can do to other countries, those countries can do back to the United States.  In effect, the United States can be hoisted by its own petard, killed by its own knife.

That is the reason Senator Orrin Hatch, Chairman of the Senate Finance Committee, and Congressman Paul Ryan, Chairman of the House Ways and Means Committee, are so concerned about currency manipulation.  Yes, currency manipulation is now a negotiating objective as set forth in the TPA.  But enforcing currency manipulation is a problem because there is no internationally accepted definition of currency manipulation.  When the US Federal Reserve used quantitative easing in the last financial crisis, was that currency manipulation?  Could other countries retaliate against the US for using quantitative easing?  That is the fear of free traders.  In international trade what goes around comes around.

The Siren Call of protectionism of putting America first by protecting companies and worker job from imports, the vast majority of which “must be unfairly traded”, however, has echoed throughout American history.  Many politicians apparently have not learned the lessons of history.  In the 1930s, President Hubert Hoover promised to help the United States dig out of the recession by raising tariff walls against imports and Congress passed the Smoot-Hawley Tariff of 1930.  Countries around the World retaliated by raising barriers to imports from the United States.  Exports and imports stopped and the World was plunged in the depression, which, in turn, was one of reasons for the rise of Adolf Hitler and the cause of the Second World War.

As one article on Capitalism states:

What was the end-result of the Smoot-Hawley Tariff Act?  As other countries placed tariffs on American exports in retaliation, these tariffs actually led to the reduction of American exports and thus jobs: With the reduction of American exports came also the destruction of American jobs, as unemployment levels which were 6.3% (June 1930) jumped to 11.6% a few months later (November 1930). As farmers were unable to pay back their loans to banks, their loan defaults led to increasing bank crashes, particularly in the West and Mid-West.

See http://capitalism.org/free-trade/what-was-the-end-result-of-the-smoot-hawley-tariff-act/

The State Department itself states on its website:

The Smoot-Hawley Tariff Act of June 1930 raised U.S. tariffs to historically high levels. The original intention behind the legislation was to increase the protection afforded domestic farmers against foreign agricultural imports.  . . . During the 1928 election campaign, Republican presidential candidate Herbert Hoover pledged to help the beleaguered farmer by, among other things, raising tariff levels on agricultural products. But once the tariff schedule revision process got started, it proved impossible to stop. Calls for increased protection flooded in from industrial sector special interest groups, and soon a bill meant to provide relief for farmers became a means to raise tariffs in all sectors of the economy. When the dust had settled, Congress had agreed to tariff levels that exceeded the already high rates established by the 1922 Fordney-McCumber Act and represented among the most protectionist tariffs in U.S. history.

The Smoot-Hawley Tariff was more a consequence of the onset of the Great Depression than an initial cause. But while the tariff might not have caused the Depression, it certainly did not make it any better. It provoked a storm of foreign retaliatory measures and came to stand as a symbol of the “beggar-thy neighbor” policies (policies designed to improve one’s own lot at the expense of that of others) of the 1930s.  Such policies contributed to a drastic decline in international trade. For example, U.S. imports from Europe declined from a 1929 high of $1,334 million to just $390 million in 1932, while U.S. exports to Europe fell from $2,341 million in 1929 to $784 million in 1932.  Overall, world trade declined by some 66% between 1929 and 1934. More generally, Smoot-Hawley did nothing to foster trust and cooperation among nations in either the political or economic realm during a perilous era in international relations.

The Smoot-Hawley tariff represents the high-water mark of U.S. protectionism in the 20th century. Thereafter, beginning with the 1934 Reciprocal Trade Agreements Act, American commercial policy generally emphasized trade liberalization over protectionism. The United States generally assumed the mantle of champion of freer international trade . . . .

See http://future.state.gov/when/timeline/1921_timeline/smoot_tariff.html.

In fact, it is the political impact and the security implications of the trade agreements, that has caused Secretary of Defense Carter and on May 8th, a bipartisan collection of 7 former US defense secretaries, including Harold Brown, William S. Cohen, Robert M. Gates, Chuck Hagel, Leon E. Panetta, William J. Perry, Donald H. Rumsfeld along with well-known Generals, such as General David H. Petraeus and General Colin Powell, to call for the passage of TPA, stating:

By binding us closer together with Japan, Vietnam, Malaysia and Australia, among others, TPP would strengthen existing and emerging security relationships in the Asia-Pacific, and reassure the region of America’s long-term staying power.  In Europe, TTIP would reinvigorate the transatlantic partnership and send an equally strong signal about the commitment of the United States to our European allies.

The successful conclusion of TPP and TTIP would also draw in other nations and encourage them to undertake political and economic reforms. The result will be deeper regional economic integration, increased political cooperation, and ultimately greater stability in the two regions of the world that will have the greatest long-term impact on U.S. prosperity and security.

Indeed, TPP in particular will shape an economic dynamic over the next several decades that will link the United States with one of the world’s most vibrant and dynamic regions. If, however, we fail to move forward with TPP, Asian economies will almost certainly develop along a China-centric model. In fact, China is already pursuing an alternative regional free trade initiative. TPP, combined with T-TIP, would allow the United States and our closest allies to help shape the rules and standards for global trade.

The stakes are clear. There are tremendous strategic benefits to TPP and TTIP, and there would be harmful strategic consequences if we fail to secure these agreements.

In a June 28, 1986 speech President Ronald Reagan indicated that he had learned the Smoot Hawley lesson stating:

Now, I know that if I were to ask most of you how you like to spend your Saturdays in the summertime, sitting down for a  nice, long discussion of international trade wouldn’t be at the top of the list. But believe me, none of us can or should be bored with this issue. Our nation’s economic health, your well-being and that of your family’s really is at stake.  That’s because international trade is one of those issues that politicians find an unending source of temptation. Like a 5-cent cigar or a chicken in every pot, demanding high tariffs or import restrictions is a familiar bit of 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.

Well, since World War II, the nations of the world showed they learned at least part of their lesson.  . . .

As many famous statesmen have stated in the past, those who do not learn from history are doomed to repeat it.

With the extreme rhetoric in the international trade area, however, the question is whether the United States truly has learned its lesson or whether it will raise the protectionist walls, and give up on free trade.  So the question is does the United States give up on Free Trade and ignore the historical lesson or does it move forward with these free trade agreements, open up markets around the World,  and retake its leadership position in international trade?.

MAY 27 UPDATE

TRANSFORMATIVE POWER OF TRADE ADJUSTMENT ASSISTANCE (“TAA”) FOR COMPANIES

As the battle for Trade Promotion Authority (“TPA”) and the Trans Pacific Partnership (TPP) moves to the House of Representatives, the merits of the Trade Adjustment Assistance for Firms/Companies program, which is linked with the TPA bill, needs to be discussed.  Many Republican Senators and Representatives oppose TAA.  On the Senate Floor, Senate Finance Committee (“SFC”) Chairman Orrin Hatch stated that he was “generally opposed” to TAA, but realized that his Democratic colleagues, led by SFC Ranking member Senator Ron Wyden, needed TAA to support TPA.

In the House, however, many Republican Representatives oppose TAA because they see TAA as an entitlement.  But when talking to Republican staff in the House, it soon becomes apparent that many Representatives do not understand that there are two TAA programs.  The first TAA program is TAA for Workers (“TAAW”), which is a $450 million job retraining program for workers that have been displaced by international trade.  That is the program, Democratic Senators and Representatives need to support, to help the Unions, their constituents.

The second TAA program, however, is TAA for Companies (also called TAA for Firms or TAAF).  TAA for Companies is set at only $16 million in the Senate and $12.5 million in the House nationwide.  TAA for Companies targets small and medium size business (SMEs) and helps them adjust to import competition.  The irony is that SMEs are the Republican sweet spot.  These companies are Republican constituents.

What are the Republican arguments against TAA for Companies?  The first argument is that the program does not work.  To the contrary, the Northwest Trade Adjustment Assistance Center (“NWTAAC”), which I have been working with, has an 80% survival rate since 1984.  In other words, NWTAAC has saved 80% of the companies that got into the program since 1984.  See the attached Wall Street Journal article, REVISED FEBRUARY242011TAACLETTERWSJ – Perry.

The transformative power of TAA for Companies is illustrated by this video from the Mid-Atlantic TAA Center with statements from four small business owners on how TAA For Companies has saved their business– http://mataac.org/media.  See also the video at https://www.youtube.com/watch?v=tCef23LqDVs&feature=youtu.be&a.

If you save the company, you save the jobs that go with the company and all the tax revenue paid into the Federal, State and Local governments.  This is the Transformative Power of TAA for Companies.  TAA for Companies does not cost the government money.  It makes money for the government.

In fact, I truly believe that President Ronald Reagan himself endorsed the TAA for Companies program.  Why?  Jim Munn.  I started working with NWTAAC because Ronald Reagan himself asked Jim Munn to look into the program in the early 80’s.  Who was Jim Munn?  He was a Republican organizer, a criminal lawyer in Seattle who won every case that he handled, and yes a personal friend of Ronald Reagan.  See his attached 2002 obituary, JIM MUNN.

What did Jim Munn find out when he investigated the program?  Lo and behold the program works.  Companies are saved, and Jim Munn stayed around as the NWTAAC board chairman for 22 years.

TAA for Companies will be a very important program that Congress can use to help their constituent businesses that will be hurt in the future by trade agreements.  The Trans Pacific Partnership will create many winners, such as agriculture, but losers too, and those losing companies will need help adjusting to the trade tsunami of imports created by the TPP.

The other Republican argument against TAAF is that this program is another Solyndra and picks winners and losers.  Nothing could be further from the truth.  First, TAA for Companies does not provide money directly to companies.  TAA provides matching funds to consultants to work with companies to help them create and implement strategic plans to compete effectively in a trade intensive environment.

Second, there is no picking winners and losers.   Companies have to meet certain statutory criteria (including a decline in business). Company plans are then vetted by business experts at regional TAAF centers, which helps create a business recovery or adjustment plan. TAAF then provides a matching fund for outside expertise to help implement that adjustment plan. When companies are helped at the local level with an adjustment plan created specifically for that company, even companies facing severe import competition can survive and can prosper.

The only limitation on TAA for Companies is the low level of financial support in the Congress.  Many companies wait for long periods of time to get into the program because there simply is no funding.  In five states in the Pacific Northwest, for example, only about 10 companies begin the program each year, which is only a small fraction of the companies facing strong import competition.

Another argument made by Senator Hatch’s Legislative staff is that TAAF is duplicative of other Federal business programs.  That again is not true.  Helping companies that have been injured by imports is an entirely different objective from other business programs.

In the first place, Trade injured companies must change their business significantly to adapt to the new intensive trade environment in order to survive and grow. While there are other programs that offer business planning help, such as SBDC, they generally focus on very small business (often retail or services). TAAF specializes in helping larger trade injured companies, often manufacturers (as well as agricultural and some services companies).

Whereas other programs offer a fixed set of services or specific solutions (e.g. manufacturing technology or lean practices), a one size fits all, from a narrow pool of consultants, TAAF offers a highly flexible solution linking a consultant to a company to solve its specific import problem. Often the consultant hired by TAAF is one that the company already knows but simply does not have the resources to hire.

Today’s SMEs are lean operations, which rely on a network of project based specialists to keep them competitive. TAAF’s strength is the flexibility of linking a specific service provider with a specific skill, matched to the individual needs of the company facing immediate threat from import competition. TAAF does not compete with the private consulting industry, but facilitates access to it. This is the power of the market working to cure the disease and is perfectly in line with Republican principles.

The Transformative Power of TAA for Companies is illustrated by companies in Senator Hatch’s Utah saved by the program.  Today there are 19 Utah companies active in TAAF, including a medical device, a precision metals, a furniture and an aluminum extrusions manufacturer. Because of TAAF, these 19 companies with a total of more $2 billion in sales have retained 1000s of high paid manufacturing jobs and added 1000s more jobs. Total cost to the US tax payer for these 19 companies – $1.2 million over a five year period. But saving those 19 companies and the jobs associated with them has resulted in substantial tax revenue at the Federal, state and local level. What TAAF has done in Utah, it has also done throughout the United States.

In addition to TAA for Companies, there are a number of other amendments to the trade laws going through the US Congress with TPA, including changes to the US antidumping law to make it easier to bring trade cases. As stated in past blog posts and as Ronald Reagan predicted in the attached 1986 speech, BETTER COPY REAGAN IT SPEECH, the problem with antidumping and countervailing duty cases is that they do not work. The Steel Industry has had protection from steel imports under US antidumping and countervailing duty laws for 40 years. Have the cases worked? Is the US Steel Industry prospering today?

All US antidumping and other trade cases can do is slow the decline in an industry. The only program that cures the disease is the TAA for Companies program and with the trade tsunami created by the TPP, this program will be needed to teach companies how to swim in the new competitive environment. That is why this program should be supported by both Republicans and Democrats in the upcoming votes in Congress. TAAF is better targeted and more effective than any other trade remedy available today.

TPA UPDATE—LATEST NEWS FROM THE HOUSE

On May 28th, it was reported that the Republican leadership in the House of Representatives intends to bring up Trade Promotion Authority (“TPA”) and Trade Adjustment Assistance (“TAA”) the week of June 8th and will hold two separate votes on its constituent parts. The House is considering taking up the Senate-passed bill, H.R. 1314, which contains both the TPA and TAA renewals, but then vote on each part separately. This could be done using a parliamentary procedure called “division of the question,” which could be written into the rule governing House consideration of the legislation. This rule, however, would have to be approved on the House floor prior to the vote on the bill itself.

The reason for holding the TPA vote in the second week of June after the House returns from recess is to give both Republicans and Democrats time to increase support for TPA to ensure they have the 217 or more votes needed to pass the bill. It takes 217 votes, instead of 218 votes, to approve the bill because of two vacancies in the House. But there are indications that the vote could slip until the third week of June to provide supporters more time to gather the votes together.

Sources are stating that they expect between 40-55 Republican no votes, although the no votes could be much higher. With 245 Republicans in the House, the 40 to 55 range would require between 17-22 Democrats voting “yes” in order to get to the required 217 votes. Democratic Congressmen can provide more than 20 votes, possibly 25 or 27, given that 17 members of the caucus have already endorsed the TPA bill.

On May 27th, Washington State Democratic Congressman, Rick Larsen, came out in favor of TPA. In the announcement, Congressman Larsen stated:

“TPA is a cornerstone of the President’s trade agenda. It is the vehicle for Congress to set standards and goals for new trade agreements the President is seeking to finalize. I believe presidents should have the authority to negotiate trade agreements based on Congressional direction. The specifics of that direction are important, and they are laid out in the 2015 TPA bill.

“I have decided to support the 2015 TPA bill because trade matters for the Second Congressional District and for Washington State. Trade matters for manufacturers of all sizes in the Second Congressional District. Opening up new markets for our businesses to sell their goods and services is a key way to help them grow their operations and create jobs here at home. We have manufacturers of all sizes in my district that trade with other countries, supporting more than 68,320 jobs. That is a sizeable piece of our economy that we simply cannot ignore. Trade matters for these factories and workers.”

“Trade matters for a variety of industries in Washington State, from agriculture to electronics to tourism. In Washington State, about 40 percent of all jobs are tied to trade in some way, and the pay for these jobs is nearly 20 percent higher than the average annual wage. Our state exported more than $90 billion in goods and services in 2014, making us the largest exporting state per capita in the country.

“I agree with a comment Secretary John Kerry made during his recent visit to the Boeing factory in Renton. He said our state is a trade leader because we discovered a long time ago that it is in our best interest to do business with the world. Helping our state’s businesses sell their products in new markets worldwide means more growth, jobs and opportunity in the Pacific Northwest. . . .

A key factor in the Vote will be the positions of House Minority Leader Nancy Pelosi (D-CA) and Minority Whip Steny Hoyer (D-MD).

Before bringing the Bill to a vote, however, TPA supporters in the House will want to make sure that they have a comfortable margin of votes beyond the required 217. Ways & Means Chairman Paul Ryan (R-WI) has already agreed, that the House will consider TPA and TAA renewal on the same day as a customs and enforcement bill and legislation to renew several trade preference programs.

On May 27th, it was reported that Chairman Paul Ryan in a May 22nd letter to Senators Hatch and Wyden stated that he intended to seek to include in the House version of a customs and enforcement bill four amendments that failed to make it into the fast-track bill in the Senate. His commitment is part of an agreement with Hatch and Wyden to use the customs bill conference as a forum to resolve outstanding issues related to fast track and potentially other trade legislation, without requiring a conference on the fast-track bill itself.

The first change Ryan agreed to make is to include in the House customs bill the trade remedy law changes championed by Sens. Sherrod Brown (D-OH) and Rob Portman (R-OH), which are pending in the House as H.R. 2523. Ryan, however, did not address how he wants to reconcile another key difference in the two customs bills, which is their provisions aimed at fighting the evasion of antidumping and countervailing duties. In addition to Trade Remedy, Ryan indicated interest in including in the House customs bill amendments on human trafficking, immigration and US seafood exports.

US CHINA TRADE WAR NEWSLETTER MAY 27, 2015

Dear Friends,

Been very busy over the last two months on a number of different cases, but now I can now get back to the blog.

TRADE PROMOTION AUTHORITY (“TPA”) BILL PASSES THE SENATE AS FIGHT ON CAPITOL HILL CONTINUES

The major trade issue is Trade Promotion Authority (“TPA”) and the Trans Pacific Partnership.

On May 22, 2015, after another close cloture vote, the TPA bill passed the Senate by a majority vote of 62 to 37 votes. The Short Title of the TPA Bill is the “Trade Act of 2015” and the long title is the “Bipartisan Congressional Trade Priorities and Accountability Act of 2015”.

The action next switches to the House of Representatives, which will take up Trade Promotion Authority in June. The fight in the House will be even more difficult than the Senate because reportedly there is more opposition to TPA, but there are no requirements for a super majority in the House.

To see the debate on the Senate Floor, see http://www.c-span.org/video/?326202-2/us-senate-debate-trade-promotion-authority.  Be prepared to move the video bar at the bottom of the screen to cycle through the trade arguments.

On May 21st in a close vote, 62-38 vote, with 60 votes required, the Senate agreed to cloture, to end debate, and to go to a final vote on the TPA bill. Two of the most important votes came from Democratic Senators Patti Murray and Maria Cantwell of Washington, who only agreed to vote to move the TPA bill forward after the Republicans agreed to a vote in June on the Ex-Im Bank, which is very important for the Boeing Company in Washington. Senator Lindsay Graham, a Republican from South Carolina, where Boeing is located, joined the Murray/Cantwell fight on the Senate Floor.

Attached is the revised TPA Bill with the Trade Adjustment Assistance (“TAA”) bill joined with it. TPA AS AMENDED MAY 22ND This combined bill happened as a result of a compromise after the Senate Democrats blocked the TPA bill on May 12th.

On May 22nd, another amendment on Currency Manipulation from Senators Wyden and Hatch was passed as a compromise. The attached Amendment Hatch-Wyden HANDWRITTEN AMENDMENT 1411 states as follows:

Foreign Currency Manipulation—The principal negotiating objective of the United States with respect to unfair currency practices is seek to establish accountability through enforceable rules, transparency, reporting, monitoring, cooperative mechanisms, or other means to address exchange rate manipulation involving protracted large scale intervention in one direction in the exchange markets and a persistently undervalued foreign exchange rate to gain an unfair competitive advantage in trade over other parties to a trade agreement consistent with existing obligations of the United States as a member of the International Monetary Fund and the World Trade Organization.

On May 22, 2015, Senator Hatch made a very strong argument against the Currency Amendment proposed by Senators Stabenow and Portman, which requires enforceable provisions, stating that the President will veto the TPA bill and if passed could lead to international sanctions against the United States by international tribunals. See Testimony of Senators Wyden and Hatch at http://www.c-span.org/video/?326202-1/us-senate-debate-trade-promotion-authority&live. See part of the speech below.

One of the key arguments for TPA was made by Democratic Senator Bill Nelson of Florida on the Senate Floor on May 22nd when he stated that a major reason for his vote was when the Joint Chiefs of Staff from the Department of Defense come to Congress and unanimously told the Armed Forces Committee that the TPA and TPP are one of the most important issues for National Security in that area of the World. As Senator Nelson stated, “I believe that this Bill will pass.”

On May 12th, after the Democrats in the Senate blocked the TPA bill from coming to the floor by a vote of 52 to 45, the TAA bill was put together with the TPA bill and started to move again. The Grand Bargain between the Democrats and Republicans is that TAA will be joined to the TPA bill. Republican Senator Hatch on the floor stated several times that although he was personally opposed to TAA, he realized that his Democratic colleagues needed TAA to vote for TPA.

Four bills have been crafted to move together. They are the TPA bill, Trade Adjustment Assistance (“TAA”) for workers and companies, Customs and Trade Enforcement Bill, formerly The Trade Facilitation and Trade Enforcement Act of 2015 (“TFTEA”), and the Trade Preferences Extension Act of 2015 (“TPEA”). The TFTEA Bill passed the Senate on May 11, 2015 and the TPTEA Bill passed on May 14, 2015, but both bills now go to the House where there survival is questionable.  Copies of those bills and Legislative History are attached.  TRADE PREFERENCES ACT TPA LEGISLATIVE HISTORY SENATE FINANCE TPA AS AMENDED MAY 22ND TAA LEGISLATIVE HISTORY LEGISLATIVE HISTORY TRADE AND CUSTOMS ENFORCEMENT BILL Hatch-Wyden HANDWRITTEN AMENDMENT 1411 CUSTOMS AND TRADE ENFORCEMENT BILL Preferences.Bill.fin

The key problem is the Customs TFTEA bill because Senators Brown and Portman have put in the bill a specific provision that currency manipulation can be considered a countervailable subsidy. That is a major problem for Republicans and also President Obama because a currency manipulation bill could be used to retaliate against US Exports because of the Federal Reserve Policy. Remember Quantitative Easing? Currency manipulation has not been defined and this is why Treasury Secretary Lew has been so cautious in going after China and other countries. All trade law is based on reciprocity and what the United States can do to one country, the other country can do back. President Obama has stated that if enforcement provisions regarding currency manipulation are tied to the TPA bill, he will veto the bill.

Also see speech by Senator Hatch at minute 40 at this link http://www.c-span.org/video/?325918-9/senators-mcconnell-reid-wyden-hatch-cornyn-trade-promotion-authority to get a better idea of what is going on. Senator Hatch described currency manipulation as “a killer amendment” to the TPA. See also Senator Hatch speech on the floor below.

Negotiations continued. See Paul Ryan’s response that the entire world is watching, including China http://video.cnbc.com/gallery/?video=3000379026

The key point is not the Democrats opposed to TPA, but the pro-trade Democrats. After the TPA bill was blocked in the Senate on May 12th, Obama met with a group of pro-trade Democrats at the White House in an effort to secure their support. In addition to Senator Caper from Delaware, that group includes: Sens. Michael Bennet (Colo.), Maria Cantwell (Wash.), Ben Cardin (Md.), Heidi Heitkamp (N.D.), Tim Kaine (Va.), Patty Murray (Wash.), Bill Nelson (Fla.), Mark Warner (Va.) and Ron Wyden (Ore.), the senior Democrat on the Senate Finance Committee and co-author of fast-track legislation.

That is an additional 9 votes, along with the two missing Republican votes. When the additional 11 votes are added, the TPA overcame the filibuster and passed the Senate. Now the TPA battle continues in the House.

This blog post will discuss brief various trade issues, including antidumping and customs, then discuss Trade Policy, including the TPA bill in detail, followed by sections on IP, Antitrust and Securities.

TRADE

STEEL TRADE CASES ARE COMING

A number of companies have contacted me with questions about potential Steel trade antidumping and countervailing duty cases against various countries with a primary target being China. In discussions with a number of companies, the major steel targeted products are likely to be imports of cold rolled steel and galvanized steel from China and other countries and possibly hot rolled steel from other countries because Chinese hot rolled steel is already covered by antidumping and countervailing duty orders.

On March 26, 2015, the Congressional Steel Caucus held a major hearing on Capitol Hill on the State of the Steel Industry. See https://www.youtube.com/watch?v=VFUbn6lnNFM

The announcement for the hearing described it as follows:

Amidst the ongoing market turbulence in our domestic steel industry, the bi-partisan Congressional Steel Caucus will feature testimony from steel industry leaders, including several Pittsburgh-based experts. Earlier this month, U.S. Steel announced that its Keewatin, Minnesota facility would shut down operations as a result of the US market being flooded with low-cost imported foreign steel. Anticipated questions to be discussed include international trade practices, currency valuation; meeting steel market needs.

At the March 26th hearing the large US steel companies urged Congress to take action against “illegal trade practices” threatening the domestic steel industry. At the Steel Caucus hearing, U.S. Steel President and CEO Mario Longhi and Nucor Corp. Chairman, CEO and President John Ferriola and others stated that the US government has been too easy in confronting foreign companies over unfair trade practices.

Mario Longhi of US Steel stated:

“This nation’s safety, security and prosperity depend upon indigenous capacity to respond to our essential national needs, in peacetime and in times of crisis. [However], not since the late 1990s have we witnessed the torrent of steel imports. The last time we were at these levels, nearly half of American steel companies disappeared … American steel companies are being irreparably harmed by illegal trade practices.”

Longhi called for revised injury standards in the US antidumping and countervailing duty laws arguing that the ITC is too focused on operating profit margins. At the meeting Senator Sherrod Brown of Ohio pledged to help the steel companies through his “The Leveling the Playing Field Act”.

That pledge resulted in the proposed changes to the US Antidumping and Countervailing Duty laws in the Customs Enforcement Bill formally entitled ‘‘Trade Facilitation and Trade Enforcement Act of 2015’’Act, which passed the Senate. That Bill is the one that includes the Currency Manipulation provision.

One provision in that Bill would change the way the US International Trade Commission (“ITC”) does its injury investigations. Specifically the Bill proposes to add an additional provision to the Material Injury provision used by the ITC in antidumping and countervailing duty cases to provide:

“(J) EFFECT OF PROFITABILITY.—The Commission shall not determine that there is no material injury or threat of material injury to an industry in the United States merely because that industry is profitable or because the performance of that industry has recently improved.’’

In talking with one friend at the ITC, he did not believe that the change would have that much impact on an ITC investigation, but the passage of the law will have an impact.

With this much smoke in the air regarding Steel imports, that usually means fire will follow. I suspect we will see a number of trade cases against steel imports, probably at the end of June or early July.

When looking at Steel Trade problems one should understand that the US Steel Industry has had various amounts of trade protection from steel imports for close to 40 years. Presently there are outstanding antidumping and countervailing duty orders against the following steel imports from China: Steel Concrete Reinforcing Bar (“Rebar”), Oil Country Tubular Goods (“OCTG”), Hot Rolled Carbon Steel, Carbon Steel Plate, Carbon Steel Butt-Weld Pipe Fittings, Circular Welded Carbon Quality Steel Pipe, Light-Walled Rectangular Pipe and Tube, Circular Welded Carbon Quality Steel Line Pipe, Circular Welded Austentic Stainless Pressure Pipe, Steel Threaded Rod, Prestressed Concrete Steel Wire Strand, Seamless Carbon and Alloy Steel Standard, Line, and Pressure Pipe, Grain Oriented Electrical Steel, Non-Oriented Electrical Steel, and Prestressed Concrete Steel Rail Tie Wire.

Against China, it is easy to bring steel trade cases because Commerce does not use actual prices and costs in China to determine dumping. But when actual prices and costs are used against market economy countries, such as Korea, it is a much bigger problem.

When I was at the ITC in the 1980s, I was the Commission staff lawyer on the first Oil Country Tubular Goods (“OCTG”) case filed against Korea in 1984. When Commerce uses actual prices and costs against countries like Korea in antidumping cases, the companies can run computer programs and make sure that they are not dumping. Since the Korean companies know they will be targeted, they are certainly running computer programs to eliminate all dumping.

With 40 years of protection from steel imports, the question should be asked is Bethlehem Steel alive today? Did the Steel Antidumping and Countervailing Duty Cases actually protect the steel industry and allow them to grow and expand or simply delay their decline?

As advocated several times in prior posts on this blog, the only way to save companies injured by imports, such as the steel companies, is a robust trade adjustment assistance program to help the companies adjust to import competition. Antidumping and countervailing duty cases do not work. They only delay the decline because a US industry cannot put up walls to unstoppable waves of imports. Instead the US industry has to adjust and learn how to compete effectively in the US market against imports, which are often fairly traded.

COMMERCE RAISES BARRIERS TO CHINESE IMPORTS BY MAKING IT MORE DIFFICULT TO GET SEPARATE RATES IN ANTIDUMPING CASES AGAINST CHINA

As stated in prior newsletters, as a result of an appeal in the Diamond Sawblades case, Commerce has raised the bar for Chinese companies to obtain their own antidumping rates by proving that they are independent of government control. The issue is especially significant for Chinese companies, which are owned in whole or in part, by the PRC State-Owned Assets Supervision and Administration Commission (SASAC).

In the Diamond Sawblades redetermination, Commerce determined that it had “further scrutinized the record” and concluded that, because the 100 percent SASAC owned majority shareholder was the only shareholder with the right to nominate all board members, including board members active in the selection of respondent’s managers, the company was not independent from the Chinese government.

Even though there was no evidence that export prices had been affected, in an investigation involving carbon and certain alloy steel wire rod from the PRC, Commerce stated that, in light of the Diamond Sawblades case, it has “concluded that where a government entity holds a majority ownership share, either directly or indirectly, in the respondent exporter, the majority ownership holding in and of itself means that the government exercises or has the potential to exercise control over the exporter’s operations generally. … Consistent with normal business practices, we would expect any majority shareholder, including a government, to have the ability to control and an interest in controlling, the operations of the company, including the selection of management and the profitability of the company.”

Meanwhile, until recently Chinese respondent companies were given 60 days from the date of Commerce initiation of an investigation or review to submit a separate rate application (“SRA”) to show that it is independent and separate from the Chinese government. Commerce has now reduced the time period to submit the SRA to 30 days and eliminated the option for early filing that previously provided NME companies with the opportunity to clarify an application Commerce deems insufficient.

COURT OF APPEALS RULES AGAINST CHINA IN GPX CASE

On March 16, 2015, in the attached GPX International Tire Corp. and Hebei Starbright Tire Co. vs. United States, GPX CAFC DECISION the Court of Appeals for the Federal Circuit (“CAFC”) turned away the second constitutional challenge to the 2012 amendment to the Countervailing Duty law affirming the U.S. Department of Commerce’s ability to apply countervailing duties on imports from nonmarket economies like China. The CAFC held that the Amendment did not violate the U.S. Constitution’s Due Process Clause even though it applied the duties retroactively.

PROPOSED CHANGES TO ANTIDUMPING AND COUNTERVAILING DUTY LAW IN CUSTOMS TRADE ENFORCEMENT BILL

Accompanying the Trade Promotion Authority Bill is the attached Customs Enforcement Bill, the ‘‘Trade Facilitation and Trade Enforcement Act of 2015,” and its legislative history which includes minor changes to the antidumping and countervailing law and significant changes to the US Customs law to stop evasion of antidumping and countervailing duty law. LEGISLATIVE HISTORY TRADE AND CUSTOMS ENFORCEMENT BILL CUSTOMS AND TRADE ENFORCEMENT BILL

Although the bill has passed the Senate, there is a substantial question whether the House of Representatives will agree. One House aide expressed confidence that the provision would eventually become law. But Congressional and business sources have pointed out the possibility that the customs bill was merely a tool that Senate Finance leaders used to funnel amendments away from Trade Promotion Authority and other bills, and that it will never become law.

This is in part because there are key differences between the House and Senate bills, meaning the Senate and House will go to conference to negotiate a comprimise bill. Among these differences in the Customs/Trade bills are the ways the two bills address the evasion of antidumping and countervailing duties, and the inclusion in the Senate bill of changes to trade remedy law that make it easier for petitioners to secure the affirmative determination necessary for duties to be imposed. On April 29th, Finance Chairman Orrin Hatch (R-UT) told reporters that he hoped the customs bill would become law, but did not provide strong assurances.

But on May 20, 2015, Senator Ron Wyden stated on the floor of the Senate that Chairman Paul Ryan has already agreed that there will be a conference committee on the Customs Enforcement Bill so a bill will pass both the Senate and the House, but what is that final bill after conference committee is still an open issue.

One key provision in the Customs and Trade Enforcement bill, however, would make currency manipulation a countervailable subsidy. Chairman Hatch has already stated on the Senate Floor if that provision is in the TPA bill it would not pass the House and would be vetoed by President Obama. If it passes the Senate, that provision will be thrown out by the House at the Conference Committee so the situation regarding this Customs and Trade Enforcement Bill is still very fluid and not settled yet in the Congress.

AMERICAN LAWYER ARTICLE ABOUT US TRADE ACTIONS AGAINST CHINA

On March 12, 2015, the American Lawyer published the attached article on The U.S. Offensive in the China Trade War, which quotes me extensively.  BETTER COPY The U.S. Offensive in the China Trade War _ The American Lawyer

STAINLESS STEEL SINKS

On April 30, 2015, the Commerce Department published the attached preliminary determination in the Stainless Steel Sinks case with dumping margins ranging from 0.81 to 5.55 %. DOC STEEL SINKS PRELIM Specifically the rates ranged from 0.81% for Guangdong Dongyuan Kitchenware Industrial Co., Ltd. to 5.55% for Guangdong Yingao Kitchen Utensils Co. with separate rates companies obtaining 2.14%.

The final determination will be in October. Attached is the Federal Register notice initiating the second antidumping and countervailing duty review investigations in the Stainless Steel Sinks case covering Chinese sinks imported during the antidumping review period April 1, 2014 through March 31, 2015 and 2014, the countervailing duty review period. MAY INITIATIONS COMMERCE REVIEWS

BOLTLESS STEEL SHELVING

On March 25, 2015, in the attached factsheet, factsheet-prc-boltless-steel-shelving-ad-prelim-032515 the Commerce Department announced an affirmative preliminary determination in the antidumping (AD) case on Boltless Steel Shelving Units from China. Commerce found preliminary antidumping rates ranging from 22.64 percent to 112.68 percent.

ITC GOES NEGATIVE NO INJURY IN 53 FOOT DRY CONTAINERS ANTIDUMPING CASE AGAINST CHINA

On May 19, 2015, the United States International Trade Commission (USITC) determined that the establishment of a U.S. industry is not materially retarded by reason of imports of 53-foot domestic dry containers from China that Commerce determined are subsidized and sold in the United States at less than fair value. As a result of the ITC negative determinations no antidumping or countervailing duty orders will be issued on imports of these products from China.

COURT OF INTERNATIONAL TRADE RULES FOR CHINA IN TAISHAN KAM KIU AND SINCE HARDWARE CASES

In the attached two determinations, Since Hardware v. United States and Taishan Kam Kiu v. United States, SINCE HARDWARE TAISHAN CITY KAM KIU the Court of International Trade remanded the Ironing Tables and Aluminum Extrusions antidumping and countervailing duty determinations back to Commerce.

SOLAR PRODUCTS ANTIDUMPING AND COUNTERVAILING DUTY ORDERS

On February 18, 2015, the attached final antidumping and countervailing duty orders in the Solar Products cases from China and Taiwan were issued. SOLAR PRODUCTS TAIWAN AD ORDER AD CVD ORDERS SOLAR PRODUCTS CHINA

MAY ANTIDUMPING ADMINISTRATIVE REVIEWS

On May 1, 2015, Commerce published the attached Federal Register notice, regarding antidumping and countervailing duty cases for which reviews can be requested in the month of May. MAY REVIEWS 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, Citric Acid and Citrate Salt, and Wind Towers.

For those US import companies that imported Aluminum Extrusions, Circular Steel Line Pipe, Citric Acid, Iron Construction Castings, Oil Country Tubular Goods, and Pure Magnesium and the other products listed above from China during the antidumping period May 1, 2014-April 30, 2015 or during the countervailing duty review period of 2014 or if this is the First Review Investigation, for imports imported after the Commerce Department preliminary determinations in the initial investigation, the end of this month is a very important deadline. Requests have to be filed at the Commerce Department by the Chinese suppliers, the US importers and US industry by the end of this month to participate in the administrative review.

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

In my experience, many US importers do not realize the significance of the administrative review investigations. They think the antidumping and countervailing duty case is over because the initial investigation is over. Many importers are blindsided because their Chinese supplier did not respond in the administrative review, and the US importers find themselves liable for millions of dollars in retroactive liability. In the Shrimp from China antidumping case, for example, almost 100 Chinese exporters were denied a separate antidumping rate.

Attached is the May 26th Federal Register notice initiating antidumping and countervailing duty review investigations against steel sinks, activated carbon, magnesium metal and steel threaded rod for imports during the period April 1, 2014 through March 31, 2015.  MAY INITIATIONS COMMERCE REVIEWS

IMPORT ALLIANCE FOR AMERICA

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

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

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

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

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

We are now in the process of trying to gather importers to meet with various Congressional trade staff as soon as possible to discuss these issues. If you are interested, please contact the Import Alliance through its website or myself directly.

TRADE POLITICS AND TRADE AGREEMENTS

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

TRADE PROMOTION AUTHORITY (“TPA”) BATTLE IN THE SENATE

As stated above, with the passage of the TPA Bill at 9PM at night on May 22nd, the TPA battle moves to the House of Representatives. This section of the newsletter will provide more background on the TPA bill and the pressure on both the Senate and the House as the bill moves through Congress.

During the Senate debate, Senate Finance Committee Chairman Senator Orrin Hatch of Utah spoke against the enforcement provisions of the proposed currency manipulation amendment to the TPA bill because it will “kill” TPA. Instead, the Senate TPA bill would make currency manipulation a major negotiating objective.

But Democrats want more. They want enforcement actions against currency manipulation. But Senator Hatch is concerned that such a provision could be used against the United States.

Other Senators are worried about possible changes to US immigration laws, environmental and labor issues. USTR has been told in no uncertain terms that touching immigration is a third rail for trade policy, and USTR has stated during Hearings on Capitol Hill that there is nothing that would “change laws and regulations with respect to immigration,”

Although TPA passed the Senate, the vote in the U.S. House of Representatives is far more uncertain. Paul Ryan, however, Chairman of the House Ways and Means Committee and former Republican Vice Presidential candidate, has pledged to take the TPA bill across the Finish Line so his credibility is riding on the bill.  That means the TPA bill should pass in the House, probably in June.

To summarize the situation, as mentioned in past newsletters, in the trade world, the most important developments may be the Trans Pacific Partnership (TPP), Trans-Atlantic (TA)/ the Transatlantic Trade and Investment Partnership or TTIP negotiations and the WTO. The TPP is a free trade agreement being negotiated by officials from the U.S., Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam. These trade negotiations could have a major impact on China trade, as trade issues become a focal point in Congress and certain Senators and Congressmen become more and more protectionist.

This has been a problem because the protectionism is coming from the Democratic side of the aisle. Democratic Senators and Congressmen are supported by labor unions. Although Democratic Congressmen have expressed interest in the TPP, to date, President Obama could not get one Democratic Congressman in the House of Representatives to openly co-sponsor Trade Promotion Authority (“TPA”) in Congress. Without bipartisan/Democratic support for these Trade Agreements, Republicans will not go out on a limb to support President Obama and risk being shot at by the Democrats as soft on trade.

As mentioned in prior blog posts, on January 29, 2014, the day after President Obama pushed the TPA in his State of the Union speech in Congress, Senate Majority leader Harry Reid stated that the TPA bill would not be introduced on the Senate Floor.

But then came the November 4th Republican wave election changing Trade Politics dramatically in Washington DC. Elections have consequences and in 2015 Republicans have taken the Senate and increased their numbers in House. The TPA Bill has now passed the Senate. The Title of the Bill is the Bipartisan Congressional Trade Priorities and Accountability Act of 2015, which is posted above. The short tile of the bill is the Trade Act of 2015. The bill has been revised on the Senate Floor to add Trade Adjustment Assistance and a currency amendment, which are set forth above.

There are changes in the bill as compared to original 2014 Bill to increase transparency, but the major objective of the two bills is the same. The TPA bill gives the Administration, USTR and the President, Trade Promotion Authority or Fast Track Authority so that if and when USTR negotiates a trade deal in the TPP or the Trans-Atlantic negotiations, the Agreement will get an up or down vote in the US Congress with no amendments.

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

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

One should understand that 90% of the negotiations of these Agreements are not conducted by political appointees of President Obama. Other than United States Trade Representative Michael Froman, who is respected by both Democrats and Republicans, most of the negotiators have been at the Office of USTR for years, if not decades, and are truly professional trade negotiators. So TPA does not truly cede power to President Obama. In fact, there will be substantial oversight of the trade negotiations by Congress.

Since my last blog post in mid-February, many groups, including 35 religious groups, labor unions, environmental and consumer advocacy organizations, complained that the Trade Negotiations are too secret and not subject to public scrutiny. At the same time, President Obama and the Administration have put on a full court press to pass the TPA.  As early as February 23, 2015, President Barack Obama used his national weekend address to repeat his call on Congress to give him Trade Promotion Authority (TPA), arguing that “95 percent of the world’s potential customers” live outside the U.S.:

“Many of them live in the Asia-Pacific — the world’s fastest-growing region. And as we speak, China is trying to write the rules for trade in the 21st century. That would put our workers and our businesses at a massive disadvantage. We can’t let that happen. We should write those rules. That’s why Congress should act on something called ‘trade promotion authority.”

“This is bipartisan legislation that would protect American workers, and promote American businesses, with strong new trade deals from Asia to Europe that aren’t just free, but are fair. It would level the playing field for American workers. It would hold all countries to the same high labor and environmental standards to which we hold ourselves.”

On March 11, 2015, the AFL-CIO upped the cost to Democrats of supporting the TPA legislation and the TPP deal, stating that it would freeze all political action committee donations to federal candidates until further notice. While Paul Ryan and President Obama were talking up TPA, on March 18, 2015 AFL-CIO President Richard Trumka vowed to kill the “rotten”.   As Trumka stated:

“Every single thing in our trade deals should be openly discussed and subject to public oversight and the full legislative process. There should be no question about that. Fast track is wrong and undemocratic, it’s a rotten process, and the American labor movement intends to kill it.”

In response to the Congressional criticism on transparency, on March 19, 2015 the Obama Administration announced new measures to provide lawmakers and their staff members the opportunity to review the TPP negotiating text. USTR set forth several changes to the USTR’s policies, the most important being placing the TPP text in the Capitol for members to view at their leisure without an administration official in attendance. Congressional members are also allowed to review the text with a personal staff member with security clearance.

Complaints, however, about access to the details of trade negotiating texts grew louder because the massive TPP deal would encompass 40 percent of global commerce. On March 26, 2015, it was reported that the protracted standoff between Wyden and Hatch centered around this very issue, transparency and oversight, with Wyden pushing for language that would make it easier for Congress to essentially “turn off” fast track with a resolution of disapproval if the negotiating standards are not met.

On March 25th, Wikileaks released a draft treaty of the TPP from the Investment Group, which led to a strong debate on Investor Arbitration Panels. This led to Senator Warren introducing an amendment to do away with investment panels, which was defeated on May 22nd, prior to the vote on the TPA. Public Citizen argued that the Investor State Dispute Settlement (“ISDS”) system provides foreign investors with more rights than those given to domestic firms and that the mechanism stands as an affront to a government’s right to regulate in the public’s interest.

On the other side, the National Association of Manufacturers praised the text and stated that the U.S. approach to investment talks has been a matter of public record for three years. As the NAM Vice President for International Economic Affairs Linda Dempsey stated:

“The investment provisions of our trade agreements, which are backed up by the neutral and well respected ISDS dispute settlement mechanism, are an important tool particularly for small and medium-size businesses that have been the most prevalent users of the ISDS dispute settlement mechanism.”

On March 26, 2016, Secretary of Defense, Ashton Carter, called for a “full-court press” on TPA, TPP, TTIP because expanding and deepening trade relationships provides stronger national security, stating:

“We also need Congress’ support for some of the most important investments we can make in our future prosperity—new trade agreements, including Trade Promotion Authority for the President. We must be allowed to clinch new and historic trade agreements spanning from Europe to Asia.

I offer this as a Secretary of Defense, convinced that a full-court press to strengthen our nation’s trade relationships will reinforce our nation’s security—while neglecting them could undercut it.

The arithmetic is straightforward.

We know that 95% of the world’s customers live beyond our borders, and the spending power of middle-class consumers in today’s emerging markets is expected to increase by 20 trillion dollars over the next decade. . . . And this trend will continue as Asia’s 570 million-strong middle class grows to about 2.7 billion consumers over the next 15 years. . . .

The bottom line is that, as global trade intensifies, we need to be both at the helm, and in the thick of it. Three years ago, trade accounted for about a third of global GDP. In a decade, it could approach half of global GDP. America’s economy, and our security that depends on it, cannot afford to be left behind. . . .

Shared growth generates magnetism: attracting new partners from around the region. While far from a guarantee, strong trade patterns also help build trust and raise the cost of conflict, while assuring our allies and partners of our long-term commitment to a shared and interdependent future…something that Secretary and General Marshall clearly understood.”

On March 26, 2015, former Republican and Democratic Commerce Secretaries, including Pete Peterson, Frederick Dent, Barbara Franklin, Mickey Kantor, William Daley, Norman Mineta, Donald Evans, Carlos Gutierrez, Gary Locke and John Bryson, urged Congress to pass the TPA Bill, but also argued that anti-currency manipulation should not be tied to trade deals.

On March 31, 2015, House Ways and Means Committee Chairman Paul Ryan, R-Wis., on Tuesday mounted a strong defense of the investor-state dispute settlement mechanism, blasting the system’s critics as “doomsayers” attempting to thwart the U.S. trade agenda with hyperbolic arguments, stating:

“The way [the critics] tell it, ISDS panels are corporate shills that gut public-safety regulations and undermine U.S. sovereignty. The truth is, there are few better tools for holding other countries accountable to the agreements they make — especially when they harm American job creators.”

Calling ISDS “one of the more mundane procedures of trade law,” Ryan stated that there is some version of the mechanism on the books in more than 3,000 trade and investment agreements around the globe, 90 percent of which have never even seen an investor dispute arise. Ryan also stated an ISDS panel does not have the power to change a country’s laws and can only fault the application of a given law.

On April 6, 2015, Defense Secretary Carter warned that “time’s running out” for the TPP deal. Failing to pass the proposed trade deal would cause the U.S. to “take ourselves out of the game”:

You may not expect to hear this from a Secretary of Defense, but in terms of our rebalance in the broadest sense, passing TPP is as important to me as another aircraft carrier. It would deepen our alliances and partnerships abroad and underscore our lasting commitment to the Asia-Pacific. And it would help us promote a global order that reflects both our interests and our values.”

On April 6, 2015, a bipartisan coalition of 76 U.S. Congress members in a letter to Representative Michael Froman and U.S. Secretary of Agriculture Tom Vilsack urged the Obama administration to ensure that the final deal opens new doors for the dairy industry, particularly in Canada and Japan.

On April 16, 2015, Senators Hatch and Wyden introduced the final bipartisan TPA Bill, the “Bipartisan Congressional Trade Priorities and Accountability Act of 2015”.

The 2015 TPA bill creates a new “transparency officer” in the USTR and establishes House and Senate advisory groups to oversee ongoing negotiations. Under the 2015 TPA bill, the Administration would also be required to make finalized trade deals available to the public for 60 days before Presidential signature and up to four months before a Congressional vote. If the deal does not meet Congressional objectives, a 60-vote majority in the Senate would strip the deal of fast-track protection and allow amendments.

But critics continued to attack the bill with AFL-CIO President Richard Trumka stating:

“We can’t afford another bad deal that lowers wages and outsources jobs,” That’s why Congress must reject Fast Track and maintain its constitutional authority and leverage to improve the TPP and other trade deals.”

On April 16th, USTR Froman made clear that the Trans Pacific Partnership (“TPP”) did not contain any changes to the US immigration system, telling lawmakers that no such modifications would be made, even though other nations involved in the negotiations are making temporary entry deals.

Although critics attacked the new TPA bill, American Agriculture Associations praised the new bill with one magazine reporting:

“Pork, corn, dairy, wheatyou name itthe American agriculture industry is standing firmly behind a new bipartisan trade promotion authority bill introduced last week.”

The Agriculture Associations supporting the bill include the American Farm Bureau, The National Association of Wheat Growers, The National Chicken Council, The National Pork Producers Council, The American Feed Industry Association, The National Cattlemen’s Beef Association, The National Milk Producers Federation and the U.S. Dairy Export Council, The Corn Refiners Association, the Corn Growers Association, the American Soybean Association, and the USA Rice Federation.

On April 20, 2015, House Ways and Means released an e-mail stating:

TPA: Good for the Farm and Ranch

Support for TPA is strong among the American agriculture industry. Industry after industry has talked about how breaking down trade barriers is critical to selling more U.S. grown and raised food abroad. But the industry also supports TPA because of the important negotiating objectives that it lays out. These guidelines help ensure that the administration is making progress on issues important to American agriculture, like directing it to:

Obtain Enforceable SPS-Plus Rules: Directs the Administration to obtain robust and enforceable rules on sanitary and phytosanitary measures and require the use of science based standards.

End Improper Use of Geographical Indications: Seeks elimination of the improper use of GIs, including registration of generic terms, which undermine market access for U.S. products.

Maintain Domestic Protections: Ensures that countries may protect human, animal, or plant life or health, consistent with international obligations.

Address Tariff and Non-Tariff Barriers: Instructs USTR to reduce or eliminate tariff and non-tariff barriers, as well as subsidies that decrease market opportunities for U.S. exports.

Preserve Family Farm Supports: Includes provisions seeking preservation of family farms and rural communities.

Facilitate Import Relief: Ensures that import relief mechanisms for perishable and cyclical products are accessible and timely.

Assess Compliance with Existing Obligations: Requires USTR to evaluate whether countries have made meaningful agriculture commitments in the WTO and whether they are living up to their commitments in the WTO and under other trade agreements.

Ensure Special Consultations on Import-Sensitive Products: Takes into account the effect of trade agreements and negotiations on import-sensitive products, and requires additional Congressional consultations on such products.

Make Tariff-Rate Quota (TRQ) Administration Transparent: Ensures transparency in the administration of TRQ programs.

On April 21, 2015, Senator Orrin Hatch, Senate Finance Chairman, called arguments by Democratic Senators that Republicans were trying to ram the Bill through the Committee “nonsense”:

“This is well-covered territory for this committee. So, while I understand and respect that there are sincerely held views on this topic, some of which are different than mine, any arguments that we’ve been less than forthcoming and transparent with this TPA legislation are, not to put too fine a point on it, nonsense.”

Hatch further stated that the Finance Committee convened nine total trade hearings during the last session of Congress and has already held three such hearings in the 2015 session. Hatch also stated that the new TPA bill closely mirrors the bipartisan TPA legislation introduced in 2014 stating:

“True enough, in our discussions, Sen. Wyden, Chairman Ryan and I made some improvements to that original bill. But, the fundamentals remain the same, and we’ve been very transparent as to what the changes have been.”

On April 21, 2015 the American Textile Industry endorsed the TPA. The National Council of Textile Organizations announced, “We are pleased to lend our support to this renewal of Trade Promotion Authority.” The Council specifically stated that the US government supports a balanced outcome, including the yarn-forward rule of origin, which requires that the yarn production and all operations forward occur in either the United States or the territory of our trading partner.

On April 22, 2015, the TPA bill cleared the Senate Finance Committee and proceeded to a fight on Senate floor. Senator Ron Wyden, ranking Democratic Member, showing a profile in courage, led the negotiations with Paul Ryan in the House, and stated after the passage of the TPA Bill in the Committee:

“The U.S. is going to aim higher in trade deals, our enforcement will be much tougher, and the process of negotiating and voting on agreements will be more transparent and more democratic. This legislation will safeguard American sovereignty and promote American values. Congress will be sending U.S. trade policy in a more progressive direction than it ever has before.”

On April 23, 2015, President Obama stated that TPP will correct the shortcomings of the North American Free Trade Agreement (“NAFTA”) because TPP would put in place tough labor and environmental standards that NAFTA did not. TPP would also contain provisions fighting illegal wildlife trafficking and logging, and protecting oceans and against overfishing. Additionally, it would ensure an open Internet, protect consumers from fraud and deception, require anti-corruption and transparency measures and simplify export rules for small businesses. As President Obama stated,

“Trade has always been tough, and it’s always been tough especially in the Democratic Party. A lot of people are skeptical of trade deals, and a lot of times it’s for good reason. For decades now, technology made good jobs obsolete, global competition meant jobs were being shipped overseas, past trade deals didn’t always live up to the hype.

“[But] we’re not going to stop a global economy at our shores. That’s the wrong lesson to draw. We can’t go back to the past.”

Meanwhile, on April 23, 2015, the TPA bill cleared the House Ways and Means Committee with Chairman Paul Ryan stating:

“We have a unique opportunity to write the rules of these trade deals to tear down those barriers and open markets for American products. TPA will increase our bargaining power so we get the most effective trade deals possible — so we tear down more trade barriers and create more opportunity right here in America.”

In the Ways and Means Committee, Democrats were unable to amend the TPA’s language on foreign currency manipulation to enact enforceable rules that would punish trading partners for manipulating their currency to gain a competitive advantage.

On April 27, 2015, the House Ways and Means Committee announced that the High Tech Industry Backs TPA:

“There’s no doubt about it: The tech industry is going big for the Trade Priorities and Accountability Act. . . .These are America’s moviemakers, software developers, and computer manufacturers—the people who drive American innovation. They understand that promoting American trade requires protecting American intellectual property. That’s the only way to keep our competitive edge in the 21st century. And that’s exactly what TPA will do.

TPA lays out almost 150 negotiating objectives for the administration to pursue in trade deals. Among them is to “ensure that governments refrain from implementing trade-related measures that impede digital trade in goods and services, restrict cross-border data flows, or require local storage or processing of data.” . . . .

Microsoft’s general counsel Brad Smith echoed this sentiment:

“Passage of renewed TPA, with its updated objectives for digital trade, is critical for America to be able to pursue its interests. And passage is important for Microsoft and our network of more than 400,000 partners, the majority of which are small businesses, to compete in the global economy.”

On April 27, 2015, House Ways and Means announced that more Conservative organizations are speaking out in favor of TPA, stating in part:

“Just last week, Americans for Tax Reform and 19 other conservative groups signed a letter in support of TPA. . . . The American Conservative Union, Citizens for Limited Taxation, Americans for Job Security, the National Taxpayers Union, the Competitive Enterprise Institute—all voiced their support for expanding American trade.

The editors at Investor’s Business Daily echo this argument:

[TPP] also would reinforce the American presence on the Pacific Rim through economic strengthening, offsetting at least to some extent President Obama’s deep naval defense cuts.

But the main thing is, for every party involved, it would contribute to decades of prosperity and economic growth, as study after study on the impact of free trade agreements has found.”

On April 27, 2015, from a Ways and Means Press Release, Paul Ryan in a radio address, on the show Morning in America, made the case for TPA, stating:

“The reason we need trade agreements with other countries is twofold.

Ninety six percent of the world’s consumers live in other countries; they don’t live in our country. And if we want to have a mature economy where we have more jobs, higher-paying jobs, we have to make and grow more things in America and sell them overseas so we can keep full employment—you know, more people working. So we have to open [markets] to our products. That’s point number one.

“Point number two is all these other countries are going around getting trade agreements for their countries that are better, that give them more access to these foreign markets. And, as a result, Americans don’t get access to those markets, which means we face higher barriers and we can’t sell our products to other markets. China is a perfect example. They’re running around the world right now trying to get better trade agreements to meet China’s needs, to run by China’s rules. And so, right now what’s happening in this global economy is the rules of the global economy are being written, and the question for us is: ‘Who writes those rules?’ Is it China writing those rules, for China’s benefit? Or are we going to write the rules, for our benefit?”

On holding the administration accountable:

“Trade promotion authority is done in a way this time very differently than others because of our mistrust of the executive. So, we tell the executive—meaning, in this case, Obama—and the next president: Here’s what you need to put in a trade agreement, here’s how you go about getting it. You have to be transparent. Members of Congress have to see it. The public has to see these agreements before they’re signed to. And Congress reserves the power to veto it. Congress gets the final say. Congress has to approve it. And if the president doesn’t put together the kind of trade agreement, the process we spell out, then we can say: ‘You didn’t do it the right way.’ And we can revoke trade promotion authority and that trade agreement. So, we’re putting sort of a belts-and suspenders approach to making Congress, the legislative branch, in charge of this so that the executive cannot go beyond his reach.”

On leveling the playing field for American workers and job creators:

“[W]e think we have done this in the right way, and the president has to go out and get the right kind of an agreement. We want to open our dairy markets. We want to open our agriculture markets, our manufacturing. Here’s the deal . … We already give these countries—in this particular case I’m talking about Asia, non-China Asian countries—we already give them pretty good access to our country. Just walk into Wal-Mart or Farm & Fleet or wherever you go, and you’ll see a bunch of goods made in Asian countries. The problem is they don’t give us the same kind of access to their markets. So what we’re trying to get here is the same kind of access to their markets that they have to ours and to give us zero tariffs.”

In response to the TPA movement, however, on April 28th, AFL-CIO President Richard Trumka repeated labor’s stance against TPA, TPP and all free trade agreements:

“All across the country, workers are leading a fierce and broad social movement to defeat fast track. We are rebelling against corporate-written free trade agreements — and we are succeeding.”

The labor movement opposes fast-track. We expect those who seek to lead our nation forward to oppose fast-track. There is no middle ground … [and] in the 2016 campaign, there will be no place to hide for those who aspire to lead America.”

On April 30th Paul Ryan issued another press release from the House Ways and Means Committee stating that the way to hold President Obama accountable is TPA:

The bottom line is, TPA will make the trade negotiations much more transparent and hold the president accountable. Here are the top eight ways TPA will empower Congress:

  • Read the negotiating text

Right now, nothing requires the administration to allow a member of Congress to read the negotiating text of an agreement. But under TPA, every member will be able to read the text of the agreement all throughout the talks.

  1. Receive up-to-date briefings

Sometimes, reading the text isn’t enough. A member of Congress wants to know where the talks are headed. TPA will require the U.S. trade representative’s (USTR) office to brief any member who asks on the status of the negotiations.

  1. Attend negotiating rounds

If that’s not enough, how about actually attending the talks? Under TPA, any interested member will be able to become a “congressional adviser” to U.S. negotiators. All designated congressional advisers will be able to attend negotiating rounds.

  1. Consult with negotiators

TPA will also create House and Senate Advisory Groups on Negotiations to oversee the talks and receive regular briefings, according to a fixed timetable. Any member will be able to submit his or her views to the group.

  1. Provide public summaries

Right now, there’s little public information about how an agreement is shaping up. TPA will require USTR to post up-to-date summaries of each chapter of the agreement so people can see what’s up.

  1. Create a new transparency officer

TPA will create a chief transparency officer at USTR that will consult with Congress and the public on transparency policies.

  1. Make the text public

The ultimate judge is the American people, so they should be able to read the text themselves. For the first time ever, TPA will codify in law the public’s right to review the agreement before the President puts his signature on it. TPA will require the administration to publish the text of a completed trade agreement at least 60 days before agreeing to it. That’s even before Congress considers a vote.

  1. Tell Congress how he will implement the agreement

Finally, at least 30 days before Congress considers the final bill, the president must tell Congress how he intends to enact the agreement if Congress passes the implementing bill.

All of these tools will shed greater light on the negotiations. We need them to get the most effective trade deals possible. We need them to hold the president accountable. And that’s why we need to establish TPA.

Meanwhile on May 5, 2015, Senator Harry Reed announced that he would convince his fellow Democrats to hold off on a TPA vote until the passage of highway infrastructure funding and surveillance legislation. Senate Majority Leader Mitch McConnell, however, rejected the Reid motion and pushed on.

On May 6, 2015, a Press Release from the House Ways and Means Committee stated:

Opponents of free trade agreements are raising a stink about transparency in trade negotiations. But the truth is, if they really want to shed light on the negotiations, the best thing they can do is pass trade promotion authority (TPA). . . .

Most notably, TPA requires the president to make public the text of a trade agreement at least 60 days before he finalizes it. And at least 30 days before he submits an implementing bill to Congress, the president must send the final legal text of the agreement and a description of how he proposes to implement the agreement. So long before the agreement comes up for a vote, the American people will have plenty of time to read and debate it. . . .

So, question: How can we make trade negotiations more transparent?

Answer: Pass TPA.

On May 8th, a bipartisan collection of former US defense secretaries, including Harold Brown, William S. Cohen, Robert M. Gates, Chuck Hagel, Leon E. Panetta, William J. Perry, Donald H. Rumsfeld along with well-known Generals, such as General David H. Petraeus and General Colin Powell, called for passage of TPA, stating:

We write to express our strongest possible support for the enactment of Trade Promotion Authority legislation, which is critical to the successful conclusion of two vital trade agreements: the . . . TPP . . . and the TTIP.

While the economic benefits of both these agreements would be substantial, as former Secretaries of Defense and military leaders we believe there is an equally compelling strategic rationale for TPP and TTIP.

First and foremost, the conclusion of these agreements would be a powerful symbol of continued U.S. leadership and engagement globally. They would reinforce relationships with important allies and partners in critical regions of the world. By binding us closer together with Japan, Vietnam, Malaysia and Australia, among others, TPP would strengthen existing and emerging security relationships in the Asia-Pacific, and reassure the region of America’s long-term staying power. In Europe, TTIP would reinvigorate the transatlantic partnership and send an equally strong signal about the commitment of the United States to our European allies.

The successful conclusion of TPP and TTIP would also draw in other nations and encourage them to undertake political and economic reforms. The result will be deeper regional economic integration, increased political cooperation, and ultimately greater stability in the two regions of the world that will have the greatest long-term impact on U.S. prosperity and security.

Indeed, TPP in particular will shape an economic dynamic over the next several decades that will link the United States with one of the world’s most vibrant and dynamic regions. If, however, we fail to move forward with TPP, Asian economies will almost certainly develop along a China-centric model. In fact, China is already pursuing an alternative regional free trade initiative. TPP, combined with T-TIP, would allow the United States and our closest allies to help shape the rules and standards for global trade.

The stakes are clear. There are tremendous strategic benefits to TPP and TTIP, and there would be harmful strategic consequences if we fail to secure these agreements. In both Asia-Pacific and the Atlantic, our allies and partners would question our commitments, doubt our resolve, and inevitably look to other partners. America’s prestige, influence, and leadership are on the line. With TPP originating in the Bush administration, these agreements are fundamentally bipartisan in nature and squarely in our national security interest. It is vitally important that we seize the new strategic opportunities these agreements offer our nation.

Despite criticism from fellow Democrats, on May 8, 2015, President Obama responded to the Democratic critics of the TPA bill at Nike’s headquarters in Oregon, home state for Senator Ron Wyden, stating:

“Vietnam would actually for the first time have to raise its labor standards. It would have to set a minimum wage. It would have to pass safe workplace laws to protect its workers. It would even have to protect workers’ freedom to form unions for the very first time. That would make a difference.”

On May 22, 2015, just prior to the passage of the TPA, on the Senate Floor Senator Orrin Hatch, in the attached speech, HATCH SPEECH ON CURRENCY MANIPULATION responded to the attempt to amend the TPA bill and add the Currency Amendment of Senators Portman and Stabenow.  Senator Hatch stated in part:

Mr. President, I want to take some time today to talk about proposals to include a currency manipulation negotiating objective in trade negotiations and the impact this issue is having on the debate over renewing Trade Promotion Authority, or TPA.

Currency manipulation has, for many, become the primary issue in the TPA debate. . . .However, I want to be as plain as I can be on this issue: While currency manipulation is an important issue, it is inappropriate and counterproductive to try to solve this problem solely through free trade agreements.

Nonetheless, I do not believe we should ignore currency manipulation, which is why, for the very first time, our TPA bill would elevate currency practices to a principal negotiation objective. This is important. It means that, if the administration fails to make progress in achieving this or any other objectives laid out in the bill, then the relevant trade agreement is subject to a procedural disapproval resolution . . . .

Of course, I understand that a number of my colleagues want to see more prescriptive language, which would limit the range of tools available and require that trade sanctions be used to keep monetary policies in line. . . .

But, first, I think we need to step back and take a look at the big picture. I think I can boil this very complicated issue down to a single point: The Portman-Stabenow Amendment will kill TPA.

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

Yesterday, I received a letter from Treasury Secretary Lew outlining the Obama Administration’s opposition to this amendment. The letter addresses a number of issues, some which I’ll discuss later. But, most importantly, at the end of the letter, Secretary Lew stated very plainly that he would recommend that the President veto a TPA bill that included this amendment.

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

at this point, it is difficult – very difficult, in fact – for anyone in this chamber to claim that they support TPA and still vote in favor of the Portman-Stabenow Amendment. The two, as of yesterday, have officially become mutually exclusive. . . .

But, regardless of what you think of Secretary Lew’s letter, the Portman-Stabenow Amendment raises enough substantive policy concerns to warrant opposition on its own. Offhand, I can think of four separate consequences that we’d run into if the Senate were to adopt this amendment, and all of them would have a negative impact on U.S. economic interests.

First, the Portman-Stabenow negotiating objective would put the TPP, agreement at grave risk, meaning that our farmers, ranchers, and manufactures – not to mention the workers they employ – would not get access to these important foreign markets, resulting in fewer good, high-paying jobs for American workers.

We know this is the case, Mr. President. Virtually all of our major negotiating partners, most notably Japan, have already made clear that they will not agree to an enforceable provisions like the one required by the Portman-Stabenow Amendment. No country that I am aware of, including the United States, has ever shown the willingness to have their monetary policies subject to potential trade sanctions. Adopting this amendment will have, at best, an immediate chilling effect on the TPP negotiations, and, at worst, it will stop them in their tracks.

If you don’t believe me, then take a look at the letter we received from 26 leading food and agriculture organizations . . . urging Congress to reject the Portman-Stabenow amendment because it will, in their words, “most likely kill the TPP negotiations” Put simply, not only will this amendment kill TPA, it will very likely kill TPP as well.

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

Requiring the inclusion of enforceable rules on currency manipulation and subsequent trade sanctions in our free trade agreements would provide other countries with a template for targeting U.S. monetary policies, subjecting our own agencies and policies to trade disputes and adjudication in international trade tribunals. We have already heard accusations in international commentaries by foreign finance ministers and central bankers that our own Fed has manipulated the value of the dollar to gain trade advantage.

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

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

While we may not agree with those allegations, the point is that, under the Portman-Stabenow formulation, judgments and verdicts on our policies will be taken out of our hands and, rather, can be rendered by international trade tribunals. . . .

Put simply, we cannot enforce rules against unfair exchange rate practices if we do not have information about them. Under the Portman-Stabenow Amendment, our trading partners are far more likely to engage in interventions in the shadows, hiding from detection out of fear that they could end up being subjected to trade sanctions.

Mr. President, for these reasons and others, the Portman-Stabenow Amendment is the wrong approach. Still, I do recognize that currency manipulation is a legitimate concern, and one that we need to address in a serious, thoughtful way.

Toward that end, Senator Wyden and I have filed an amendment that would expand on the currency negotiating objective that is already in the TPA bill to give our country more tools to address currency manipulation without the problems and risks that would come part and parcel with the Portman-Stabenow Amendment. . . .

TRADE ADJUSTMENT ASSITANCE PROGRAM—REAUTHORIZATION

As stated in my last blog posts, I have made the case for the Trade Adjustment Assistance Program for Firms/Companies, which has been cut to $12.5 million nationwide. The TAA Bill, which is attached to the TPA bill, in the Senate brings the TAA for Firms program back to $16 million. In the House, however, TAA has been cut to $12.5 million. So the question is what happens in the Conference Committee?

To summarize the history, at the end of 2014, because of the efforts of Senator Sherrod Brown and Congressmen Adam Smith, Derek Kilmer and Sander Levin in the House, the TAA for Firms/Companies program was reauthorized in the Cromnibus Bill, which went through the Senate and the House and was signed into law by President Obama. Although Senator Brown advocated that the assistance for US companies in the TAA for Firms program be increased to $50 million, in fact, the program was cut from $16 million to $12.5M.

As the TPP, TTIP and other trade agreements come into force changing the US market by government action with the force of a government tsunami, TAA for firms/companies is the only program that will give companies the tools they need to adjust to increased trade/import competition from so many different countries.

RUSSIA—US SANCTIONS AS A RESULT OF UKRAINE CRISIS

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

Commerce stated:

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

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

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

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

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

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

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

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

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

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

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

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

The facilitation of any such transactions.

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

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

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

CUSTOMS

There are significant changes to Customs law in the Customs and Trade Enforcement Bill, formerly The Trade Facilitation and Trade Enforcement Act of 2015 (“TFTEA”), which passed the Senate on May 11, 2015. Some of those provisions include tough enforcement provisions for evasion of US antidumping and countervailing duty laws. The question, however, is whether these changes will ever become law because the Bill has to pass the House and then go to Conference Committee.

PRODUCTS LIABILITY AND TRADE—HOW CHINESE ACTIONS CAN DESTROY LARGE US IMPORT COMPANIES/RETAILERS

Quality problems with Chinese imported products can hit US import companies and retailers like a trade tsunami, potentially driving large US companies out of business. Nothing illustrates this problem better than the major issues facing Lumber Liquidators because of imports of low quality, high formaldehyde laminate flooring from China.

Lumber Liquidators Inc. has been hit with close to a hundred class action complaints for products liability, consumer actions and even securities cases because of its sale of formaldehyde-laden Chinese flooring. The Actions accuse Lumber Liquidators of defrauding US consumers by falsely stating that its Laminate Flooring meet state emissions standards for the toxic Formaldehyde chemical.

The Complaints allege that Lumber Liquidators routinely sells Chinese-made flooring that greatly exceeds California and other State Air Resource Board standards for safe formaldehyde emissions. Yet Lumber Liquidators advertises on its website and elsewhere that it ensures all of its suppliers comply with California’s “advanced environmental requirements,” even for products sold in other states.

These Actions have originated from a 60 Minutes program, a well-known nationwide news investigative program, which revealed that independent testing of dozens of boxes of Chinese flooring from Lumber Liquidators stores in four states, revealed that all but one of the samples surpassed the California Formaldehyde limit and some went more than 13 times beyond the mark. This 60 Minutes New Report led to the filing of dozens of lawsuits against Lumber Liquidators under Products Liability law and consumer protection/false advertising law. Reportedly the number of complaints is now over one hundred.

Meanwhile, in Sept. 2013, the U.S. Fish and Wildlife Service and the U.S. Department of Homeland Security’s Immigration and Customs Enforcement service carried out a search warrant at Lumber Liquidator’s corporate offices in Richmond, Virginia.  Multiple media reports have reported that the raid was linked to wood suspected of having originated from the Siberian tiger’s habitat.

On March 25, 2015, the U.S. Consumer Protection Safety Commission (“CSPC”) announced that it was investigating the formaldehyde content of Chinese laminate tile flooring imported by Lumber Liquidators Inc. following the 60 Minutes investigation. In a 2013 report, the CPSC said formaldehyde has been linked to cancer in humans and lab animals but added that some people are more susceptible to the chemical effects than others. In response to the announcement, Lumber Liquidators reported that it was cooperating with other agencies, including the U.S. Environmental Protection Agency, Centers for Disease Control, Federal Trade Commission and others.

On April 29th, Lumber Liquidators announced that in addition to the more than 100 class action cases filed against it, the US Justice Department (“DOJ”) will seek criminal charges against Lumber Liquidators for violating a conservation law in connection with imported wood flooring products. Specifically the DOJ stated that it is seeking criminal charges under the Lacey Act, a conservation law that prohibits import of products made from illegally logged woods.

With all the class action cases, earnings fell, which resulted in a Securities Class Action against Lumber Liquidators by stock investors alleging securities fraud, arguing that its record-high profits were based on creative “sourcing initiatives” when in fact they came from illegal wood harvesting and the sale of cheap formaldehyde laced floors. The company and its entire board of directors were named as defendants in the April 15 derivative complaint by Amalgamated Bank, the trustee for an index fund that has invested in Lumber Liquidators stock. See actual complaint below.

Specifically, the securities complaint alleged that Lumber Liquidators reported gross margins that were significantly higher than those of its major competitors, Home Depot and Lowe’s Companies Inc., because partnerships in China allowed it to cut out middlemen and work directly with suppliers. In reality, the company was buying engineered and laminate flooring manufactured in China that contained and emitted dangerously high and illegal levels of formaldehyde, as well as wood that had been illegally harvested from protected forests in the Russia, home to the critically endangered Siberian tiger and Far East leopard.

According to the suit, the directors breached their duties to shareholders by failing to prevent possible violations of environmental and consumer protection laws and by failing to disclose the illicit practices in public U.S. Securities and Exchange Commission filings. As the Complaint states at paragraph 14:

“Moreover, as a result of defendants’ breaches of their fiduciary duties, the Company is now subject to several complex and expensive securities class action lawsuits alleging violations of the CARB Regulations; the Lacey Act; the Racketeer Influenced & Corrupt Organizations Act (“RICO”); the Magnuson -Moss Warranty Act; breach of express and implied warranties; violation of Consumer Protection/Deceptive Practices acts; unjust enrichment; and lawsuits alleging violations of California’s Proposition 65. On March 10, 2015, The New York Times reported that the Attorney General of New York, Eric T. Schneiderman, had opened an inquiry into whether the Company violated safety standards and that officials in California are also likely to investigate.”

According to paragraph 17 of the complaint,

“Although Lumber Liquidators has been severely injured, defendants [Board Members] have not fared nearly so badly. During the relevant time period, defendants collectively pocketed millions in salaries, fees, stock options, illicit insider trading profits and other payments that were not justified in light of the violations of state and federal law at Lumber Liquidators that occurred on their watch. . . .”

According to the shareholders, the scandals have exposed Lumber Liquidators to “millions of dollars in potential liability” from various investigators and allegedly wiped out more than $1.2 billion in shareholder equity. As further stated in paragraph 116 of the complaint:

“Moreover, these actions have irreparably damaged Lumber Liquidators’ ‘environmentally conscientious’ corporate image. For at least the foreseeable future, Lumber Liquidators will suffer from what is known as the ‘liar’s discount,’ a term applied to the stocks of companies that have been implicated in improper behavior and have misled the investing public, such that Lumber Liquidators’ ability to raise equity capital or debt on favorable terms in the future is now impaired.”

The Complaint also details the allegations against Lumber Liquidator’s Chinese suppliers at paragraphs 82-96, stating in part in paragraph 98:

Moreover, defendants were fully aware of the risks of importing wood from China-a country often associated with the export of wood products with excess formaldehyde levels and illegally sourced timber. For example, in February 2012, the leading Chinese hardwood flooring company, Anxin Weiguang Flooring, was forced to pull its wood flooring products from shelves pending an investigation by Shanghai’s Bureau of Supervision, Inspection and Quarantine because of claims that the flooring emitted excessive levels of formaldehyde. One study, entitled “Formaldehyde in China: Production, consumption, exposure levels, and health effects,” 35 Environment Int’l (Nov. 2009), found that over the last 20 years, China’s formaldehyde industry has experienced unprecedented growth, and now produces and consumes one-third of the world’s formaldehyde. More than 65% of the Chinese formaldehyde output is used to produce resins which are mainly found in wood products. These are also the major source of indoor air pollution in China. The study documented numerous instances of hazardous occupational exposure to formaldehyde in Chinese wood workers.

On May 7, 2015, Lumber Liquidators announced that it was suspending sales of laminate flooring from China that prosecutors and consumers have alleged contain toxic levels of the building chemical formaldehyde, and will conduct a review of its suppliers who had labeled the product as meeting California’s limits for the carcinogenic chemical. Lumber Liquidators also hired former Federal Bureau of Investigation director Louis Freeh’s consulting firm to advise it on compliance issues.

On May 21, 2015, Lumber Liquidators announced that its CEO Robert M. Lynch has resigned “unexpectedly”.

The Lumber Liquidators problems illustrate the importance of quality control of Chinese products and how actions in China can seriously damage, if not destroy, their US customers, well-known US companies and brands.

SOME OF THE LUMBER LIQUIDATOR COMPLAINTS

False Advertising and Consumer Protection

On March 6, 2015 Sara Latta filed a class action case against Lumber Liquidators for false advertising and consumer protection violations. LATTALL

On March 9, 2015, Jerry Green and Twala Scott filed a class action case against Lumber Liquidators for false advertising and consumer protection violations. GREEN LL

On March 12, 2015, Mary Kleinsasser filed the attached class action case against Lumber Liquidators for false advertising and consumer protection violations. KLEINASSERLL

On March 12, 2015, Adam White and Julia White a class action case against Lumber Liquidators for false advertising and consumer protection violations. WHITE LUMBER

On March 27, 2015, Thomas P. Phelan filed a class action case against Lumber Liquidators for false advertising and consumer protection violations. PHELAN LUMBER LIQUIDATORS

On March 27, 2015, James Silverthorn filed a class action case against Lumber Liquidators for false advertising and consumer protection violations. SILVERTHORN LUMBER

SECURITIES CASES AGAINST LUMBER LIQUIDATORS

On April 15, 2015, Amalgamated Bank filed the attached shareholder derivative complaint for breach of fiduciary duty, corporate waste and unjust enrichment against Lumber Liquidators and its directors and officer. AMALGAMATED BANK LUMBER LIQUIDATORS CASE

IP/PATENT AND 337 CASES

CAFC MAKES DOMESTIC INDUSTRY AN ISSUE IN 337 CASES

Under section 337, owners of US patents, trademarks and copyrights can filed a case against infringing imports. After a year-long proceeding before an Administrative Law Judge and the ITC itself, if the Commission finds that these unfair imports have injured a US industry, it can issue an exclusion order and the infringing imports will be kept out at the border.

On May 11, 2015 in the attached decision, Lelo Inc, v, International Trade Commission, CAFC LELO DOMESTIC INDUSTRY, the Court of Appeals for the Federal Circuit (“CAFC”) increased the domestic industry standard, reversing the ITC and determining that there was no domestic industry in a section 337 case, stating:

In Certain Kinesiotherapy Devices and Components Thereof, Inv. No. 337-TA-823, Initial Determination at 50 (Jan. 8, 2013) (“Initial Determination”), “the Administrative Law Judge determined initially that the domestic industry requirement had not been met because the ALJ rejected Plaintiff’s arguments that its U.S. purchase of the four components constituted a “significant investment in plant and equipment,” or a “substantial investment in its exploitation, including engineering, research and development, or licensing,” under prongs (A) and (C), respectively, of the § 337 domestic industry requirement.”

Specifically, the ALJ concluded that Standard Innovation’s U.S. purchases were not relevant to a prong (A) analysis because Standard Innovation failed to establish what portion, if any, the purchase price actually contributed towards a domestic investment in plant or equipment. . . . The ALJ also decided that the components were off-the-shelf items and not relevant to prong (C) because there was no proof that the components were developed specifically for Standard Innovation’s devices, or what portion, if any, of the purchase price was allocable to research and development costs incurred in the development of the components.

Further, the ALJ determined that even if the purchases were relevant, they were neither “substantial” nor “significant” under prongs (A) or (C). . . . . The total purchase prices accounted for less than five percent of the total raw cost of the devices.

The CAFC went on to state:

The Commission, however, reversed the ALJ’s domestic industry determination, finding that “Standard Innovation has satisfied the domestic industry requirement based on its expenditures on components produced domestically that are critical to [its devices].” . . .The Commission rejected the ALJ’s economic prong analysis because Standard Innovation “established that the components were critical for [its devices], which the ALJ found to be protected by the patent. This is sufficient for us to consider the component expenses in our economic prong analysis.”

The CAFC found:

The Commission determined that Standard Innovation’s investment and employment under prongs (A) and (B) were quantitatively “modest,” . . ., which we take to mean “insignificant.” The Commission also found that Standard Innovation did not establish prong (C). . . . We agree with the Commission’s finding that investment and employment under prongs (A) and (B) were modest and insignificant. The Commission erred when it disregarded the quantitative data to reach its domestic industry finding based on qualitative factors. Qualitative factors cannot compensate for quantitative data that indicate insignificant investment and employment. As such, Standard Innovation did not establish a “significant” “investment” or “employment” under prongs (A) or (B), and did not set forth evidence of relevant investments under prong (C). Accordingly, Standard Innovation did not satisfy the domestic industry requirement of § 337.

The CAFC then determined:

We hold that qualitative factors alone are insufficient to show “significant investment in plant and equipment” and “significant employment of labor or capital” under prongs (A) and (B) of the § 337 domestic industry requirements. The purchase of so called “crucial” components from third-party U.S. suppliers are insufficient to satisfy the “significant investment” or “significant employment of labor or capital” criteria of § 337 where there is an absence of evidence that connects the cost of the components to an increase of investment or employment in the United States.

NEW 337 COMPLAINTS

On April 30, 2015, Pacific Bioscience Laboratories, Inc. filed a new section 337 case at the ITC against imports of Electric Skin Care Devices, Brushes, Chargers and Kits Containing Same from the follow companies:

Our Family Jewels, Inc. d/b/a Epipur Skincare, Parker, CO; Accord Media, LLC d/b/a Truth in Aging, New York, NY; Xnovi Electronic Co., Ltd., China; Michael Todd True Organics LP. Port St. Lucie, FL; Mtto LLC, Fort St. Lucie, FL; Shanghai Anzikang Electronic Co., Ltd., China; Nutra-Luxe M.D., LLC, Fort Myers, FL; Beauty Tech, Inc., Coral Gables, FL; Anex Corporation, Korea; RN Ventures Ltd., United Kingdom; Korean Beauty Co., Ltd., Korea; H2Pro Beautylife, Inc., Placentia, CA; Serious Skin Care, Inc., Carson City, NV; Home Skinovations Inc., Canada; Home Skinovations Ltd., Israel; Wenzhou AI ER Electrical Technology Co., Ltd. d/b/a Cnaier, China; Coreana Cosmetics Co., Ltd., Korea; and Flageoli Classic Limited, Las Vegas, NV

PATENT AND OTHER INTELLECTUAL PROPERTY CASES

SIX CHINESE CITIZENS CHARGED WITH ECONOMIC ESPIONAGE

On May 19, 2015, the US Justice Department announced that it has indicted six Chinese individuals for economic espionage. The Justice Department stated in the attached announcement, DOJ CHINA PROFESSORS:

Chinese Professors Among Six Defendants Charged with Economic Espionage and Theft Of Trade Secrets for Benefit of People’s Republic of China

Chinese Professors Alleged to Have Stolen Valuable Technology from Avago Technologies and Skyworks Solutions to Benefit a PRC University

On May 16, 2015, Tianjin University Professor Hao Zhang was arrested upon entry into the United States from the People’s Republic of China (PRC) in connection with a recent superseding indictment in the Northern District of California . . . .

The 32-count indictment, which had previously been sealed, charges a total of six individuals with economic espionage and theft of trade secrets for their roles in a long-running effort to obtain U.S. trade secrets for the benefit of universities and companies controlled by the PRC government.

“According to the charges in the indictment, the defendants leveraged their access to and knowledge of sensitive U.S. technologies to illegally obtain and share U.S. trade secrets with the PRC for economic advantage,” said Assistant Attorney General Carlin. “Economic espionage imposes great costs on American businesses, weakens the global marketplace and ultimately harms U.S. interests worldwide. The National Security Division will continue to relentlessly identify, pursue and prosecute offenders wherever the evidence leads. . . .

“As today’s case demonstrates, sensitive technology developed by U.S. companies in Silicon Valley and throughout California continues to be vulnerable to coordinated and complex efforts sponsored by foreign governments to steal that technology,” said U.S. Attorney Haag. “Combating economic espionage and trade secret theft remains one of the top priorities of this Office.” . . .

According to the indictment, PRC nationals Wei Pang and Hao Zhang met at a U.S. university in Southern California during their doctoral studies in electrical engineering. While there, Pang and Zhang conducted research and development on thin-film bulk acoustic resonator (FBAR) technology under funding from U.S. Defense Advanced Research Projects Agency (DARPA). After earning their doctorate in approximately 2005, Pang accepted employment as an FBAR engineer with Avago Technologies (Avago) in Colorado and Zhang accepted employment as an FBAR engineer with Skyworks Solutions Inc. (Skyworks) in Massachusetts. The stolen trade secrets alleged in the indictment belong to Avago or Skyworks.

Avago is a designer, developer and global supplier of FBAR technology, which is a specific type of radio frequency (RF) filter.

Throughout Zhang’s employment, Skyworks was also a designer and developer of FBAR technology. FBAR technology is primarily used in mobile devices like cellular telephones, tablets and GPS devices. FBAR technology filters incoming and outgoing wireless signals so that a user only receives and transmits the specific communications intended by the user. Apart from consumer applications, FBAR technology has numerous applications for a variety of military and defense communications technologies.

According to the indictment, in 2006 and 2007, Pang, Zhang and other co-conspirators prepared a business plan and began soliciting PRC universities and others, seeking opportunities to start manufacturing FBAR technology in China. Through efforts outlined in the superseding indictment, Pang, Zhang and others established relationships with officials from Tianjin University. Tianjin University is a leading PRC Ministry of Education University located in the PRC and one of the oldest universities in China.

As set forth in the indictment, in 2008, officials from Tianjin University flew to San Jose, California, to meet with Pang, Zhang and other co-conspirators. Shortly thereafter, Tianjin University agreed to support Pang, Zhang and others in establishing an FBAR fabrication facility in the PRC. Pang and Zhang continued to work for Avago and Skyworks in close coordination with Tianjin University. In mid-2009, both Pang and Zhang simultaneously resigned from the U.S. companies and accepted positions as full professors at Tianjin University. Tianjin University later formed a joint venture with Pang, Zhang and others under the company name ROFS Microsystem intending to mass produce FBARs.

The indictment alleges that Pang, Zhang and other co-conspirators stole recipes, source code, specifications, presentations, design layouts and other documents marked as confidential and proprietary from the victim companies and shared the information with one another and with individuals working for Tianjin University.

The six indicted defendants include: Tianjin University Professor Hao Zhang, Professor Wei Pang, Professor Jinping Chen, Huisui Zhang (Huisui), and Chong Zhou, a Tianjin University graduate student, and Zhao Gang, the General Manager of ROFS Microsystems.

The maximum statutory penalty for each one of these violations is more than 10 years imprisonment and 100s of thousands of dollars in fines. The case is USA v. Wei Pang.

On May 21, 2015, Tianjin University denied the charges against the three professors, pledged legal support to the professors and accused U.S. officials of “politicizing” the issue and endangering academic exchanges between the two countries.

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

Complaints are attached to each citation.

On February 13, 2015, e.Digital Corporation filed the attached patent case against Shenzhen Gospell Smarthome Electronic Co., Ltd. (dba Oco Camera); Ivideon LLC (dba Oco Camera); Global Innovations; and, New Sight Devices Corp. SHENZHEN GOSPELL

On February 17, 2015, Parthenon Unified Memory Architecture LLC filed a patent complaint against ZTE. PARTHENON ZTE COMPLAINT

On February 27, 2015, Innovation Works, Inc. filed a trademark case against Innovation Works (Beijing) Ltd., IW North America. INNOV BEIJING

On March 2, 2015, Optis Wireless Technology LLC et al filed a patent case against ZTE Corporation et al. OPTIS ZTE

On March 2, 2015, Skyworks Solutions, Inc. filed a patent complaint against Kinetic Technologies, Kinetic Technologies Hong Kong and China. SKYWORKSKIN

On March 4, 2015, Petmatrix LLC filed a patent complaint against Wenzhou Yuxiang Pet Product Co., Ltd. WENZHOU PATENT CASE

On March 5, 2015, Magnet Products International Group filed a trade secrets fraud case against Maghold LLC, Mary Zhang, and Dongguan Maghard Flexible Magnet Co, and Xiaodong Wang. MAGNET TRADE

On March 9, 2015, Orlando Communications LLC filed a patent case against ZTE Corp., et al. ZTE ORLANDO

On March 10, 2015, Saint Lawrence Communications filed a patent complaint against ZTE.  STLAWRENCE ZTE

On March 12, 2015, Anki Inc. filed a patent case against China Industries Ltd T?A Wow Stuff. ANKI CHINA INDUSTRIES

On March 13, 2015, China Central Television, Dish Network LLC et al filed a copyright and trademark case against Create New Technology (HK) Ltd., Hua Yang International Technology Ltd., Shenzhen GreatVision Network Technology Co., Ltd., Club TVPAD, Inc., Bennet Wong, Asha Media Group Inc. d/b/a TVPAD.com, Amit Bhalla, NewTVPad Ltd., Liangzhong Zhou, and Honghui Chen.  CCTV

On March 18, 2015, Lilith Games (Shanghai) Co., Ltd. filed a copyright case against uCool, Inc. and uCool Ltd. LILLITH GAMES SHANGHAI

On March 24, 2015, Wetro Lan filed a patent complaint against Huawei. HUAWEI PATENT COMPLAINT

On March 25, 2015, Streamlight Inc. filed a patent complaint Ningbo Highlite Technical Co., Ltd. NINGBO PATENT

On March 26, 2015, Tianhai Lace, a Chinese company, filed a copyright case against Posh Shop, a US company. TIANHAI COPYRIGHT

On April 1, 2015, Crafty Productions, Inc. et al filed a copyright and fraud case against Fuqing Sanxing Crafts Co. Ltd., a China company, Tony Zhu, MRF Associates, Inc., Michelle Faherty, The Michaels Companies, Inc., Michaels Stores, Inc., ZheJiang HongYe Co. Ltd., a China company, Fuzhou Bomy Trading Co., Ltd., a China company, Fuzhou Great Suns Co. Ltd., a China company, Sunface Crafts Co. Ltd., a China company, and a number of other US retail companies. CRAFTY COPYRIGHT

On April 2, 2015, Trans-Texas Tire, LLC filed an unfair competition and breach of contract case for unfair misappropriation of molds against Tianjin Wanda Tyre Group Co., Ltd, and Zhang Guanghhui and Li Xue Yong. TIRE MOLDS UNFAIR COMPETITION

On April 6, 2015, Express Mobile filed a patent case against Alibaba Group Holding Ltd. ALIBABA EXPRESS

On April 9, 2015, Nonend Inventions, N. V. filed patent complaints against Huawei and ZTE and multiple other high tech clients. NONENDZTE NONENDHUAWEI

On April 17, 2015, Synaptics Inc. filed a patent case against Goodix Technology Inc., Shenzhen Huiding Technology Co., Ltd. a/k/a Shenzhen Goodix Technology Co., Ltd. and Blu Products, Inc. SHENZHEN PATENT

On April 24, 2015 Nova Intellectual Solutions LLC filed a patent complaint against ZTE. NOVA ZTE CASE

On April 30, 2015, Cellular Communications Equipment LLC filed a patent case against ZTE Corp and a number of other companies. CELL ZTE

On May 1, 2015, Pacific Bioscience Laboratories, Inc. filed patent complaints against Wenzhou Ai ER Electrical Technology Co., Ltd. dba Cnaier and Shanghai Anzikang Electric Co., Ltd. PACIFIC BIO WENZHOU PACIFIC BIOSCIENCE

On May 4, 2015, Ti Beverage Group, Ltd. and Michael Machat filed a trademark infringement case against Alibaba Group Holding Ltd., and Ebay Inc. TIBEV ALIBABA

On May 4, 2015, Anthony California, Inc, filed a copyright and trade secret case against Fire Power Co., Ltd., New Bright Jet Lighting (Shenzhen) Co., Ltd., Interest Plus Investments Ltd., Chien Tsai Tsai, Chien Ho Tsia, James Moran and M&M Sales, and Direct Lighting LLC. CHINA SHEN NEW BRIGHT

On May 8, 2015, Frequency Systems, LLC filed patent complaints against Huawei and ZTE. ZTE FREQ HUAEWEI AGAIN

On May 12, 2015, Nuhertz Technologies, LLC filed a copyright and trademark case for software piracy against Alibaba Group Holding Ltd., Alibaba.Com Hong Kong Ltd., Alibaba. Com Ltd., Alibaba.Com Investment Holding Ltd., Other Alibaba Companies, Taobao Holding Ltd., Taobao China Holding Ltd., Taobao (China) Software Co., Ltd., and Alipay.Com Co., Ltd. NUEHERTZ ALIBABA

On May 15, 2015, Gucci filed a major trademark and counterfeiting case against Alibaba. Specifically, on May 15, 2015, Gucci America, Inc., Balenciaga S.A., Balenciaga America, Inc., Bottega Veneta S.A., Bottega Veneta Inc., Yves Saint Laurent America, Inc. Luxury Goods International (L.G.I.) S.A. and Kering S.A. filed the trademark and counterfeiting case against Alibaba Group Holding Ltd., Alibaba.Com Hong Kong Ltd., Alibaba. Com Ltd., Alibaba.Com Investment Holding Ltd., Other Alibaba Companies, Taobao Holding Ltd., Taobao China Holding Ltd., Taobao (China) Software Co., Ltd., and Alipay.Com Co., Ltd. GUCCI ALIBABA

Complaints will be posted on my blog, www.uschinatradewar.com.

ANTITRUST

There have been major developments in the antitrust area in China.

CHINA ANTI-MONOPOLY CASES

DORSEY ARTICLE BY PETER CORNE

Peter Corne, who heads Dorsey’s Shanghai office, published the following article on March 13, 2015 about China’s antimonopoly law:

NDRC’s Qualcomm Decision Sends Mixed Messages

Chinese New Year celebrations culminated in a big way for foreign multinationals in China with the news at the end of February that the head of the National Development and Reform Commission’s (“NDRC’s”) Antitrust Bureau had been removed. Xu Kunlin had made his name by initiating numerous investigations against sectors involving multinationals such as auto parts and bearings, cars, and contact lenses. Former Director Xu (who is still director of the NDRC’s Price Department) was widely regarded as a fine leader, and his Antitrust Bureau hit monopolies with hefty penalties of RMB 7.9 Billion (US$1.29 Billion) from 2014 through February 10, the date the Qualcomm decision was announced as discussed below. He has been replaced by Zhang Handong (former deputy director of the Healthcare Reform Office under the State Council), whom we presume will take time to settle into his new position. Based on his familiarity with the medical sector, we would caution clients in that sector to continue to pay close attention to antitrust compliance.

The full content of the long-awaited result of the Qualcomm decision was published in early March (following the February 10 announcement of the result). In only three prior cases has the NDRC published the full content of an antitrust decision. Qualcomm was ordered to cease its infringing activities and was assessed a fine of RMB 6.1 billion (US$975 million), which represented about 8% of its 2013 revenue in China. The NDRC found Qualcomm guilty of abuse of market dominance and implementing monopolistic activities that eliminate and restrict competition. The following activities were deemed illegal: (1) charging unfairly excessive patent royalties, (2) tying patents that are not standard-essential patents in the telecom industry without a legitimate reason, and (3) imposing unreasonable conditions in the sale of baseband chips. During the investigation Qualcomm cooperated with the authorities and raised a series of rectification measures including the following:

(1) calculating patent royalties on the basis of 65% of net wholesale price of the device sold in China,

(2) when Qualcomm licenses its patent to Chinese licensees it will provide a list of patents and not charge royalties over patents that have already expired,

(3) Qualcomm will no longer require that Chinese licensees provide a compulsory (and royalty-free) cross-license for Qualcomm customers,

(4) where wireless standard-essential patents are concerned, Qualcomm will not tie in non-standard-essential patents without a legitimate reason, and

(5) unreasonable conditions will not be included in the license agreements when selling baseband chips, such as conditions prohibiting licensees from challenging the terms in the license agreement.

The Chinese press celebrated the decision as a victory for China. But Qualcomm was not forced to change its business model by the NDRC, so the decision could have been far worse for Qualcomm, reflected in a rise in the stock price of Qualcomm by 4.69% on the second day after the decision was announced.

Qualcomm’s core business model is to impose royalties on the net selling price of the entire device rather than the chips or other components, so it need now only change the calculation of the royalty base rather than the business model itself, leading some commentators to claim that the decision was a victory for Qualcomm.

Although the media claims victory for both sides, many problems seem to have been forgotten. For example, why was a formal investigation only initiated at the end of 2013 when publicly-available information indicates that the first complaint was made as early as 2008 by Texas Instruments? Further, under the Chinese Anti-Monopoly Law a guilty decision requires that illegal gains be confiscated, but this case resulted only in the imposition of a fine.

The NDRC required such a confiscation in the LCD maker case. So if the NDRC agreed that 65% (mentioned above in Qualcomm’s rectification plan) was the correct calculation base, then Qualcomm should at least have been asked to return the portion of royalties calculated on the other 35% (which could amount to billions of dollars). In addition, the law provides that a fine should be charged on the basis of the revenue of the previous year, i.e. 2014, and not 2013, which was used in the decision. Some even questioned the jurisdiction of the NDRC in the first place because, judging from the decision, most of the illegal activities listed were not price-related, indicating that it would have been more appropriate for SAIC to launch the investigation.

On the other hand, Qualcomm dropped its request for a hearing at the last minute, and paid up the fine in only three days. All of the above clues lead us to believe that the decision was the result of a compromise between the investigator and the investigated, in the context of which the investigator somehow lost sight of the fact that it was deviating from the national law. But we have seen this before. For example, in the Liquor Case involving Chinese spirits (Moutai and Wuliangye), the NDRC limited its investigation to provincial level, only in Guizhou and Sichuan.

The moral of the story seems to be to make sure that you proactively engage the authorities up front. It may be best to do so before any investigation is even contemplated. Regardless of the timing, it appears that open engagement during an investigation should lead to a much better result.

ANJIE LAW FIRM

On March 16, 2015, Michael Gu, a Chinese antitrust lawyer at the Anjie Law Firm in Beijing, sent out the attached 014 review of Chinese anti-monopoly law. Public competition enforcement_China 2015_AnJie_20150316.

T&D JANUARY REPORT

On May 2, 2015 T&D also sent us the attached April report on Chinese competition law. T&D Monthly Antitrust Report of April 2015

SECURITIES

FOREIGN CORRUPT PRACTICES ACT (“FCPA”)

DORSEY MAY ANTI-CORRUPTION DIGEST

Dorsey recently published its attached May anti-corruption digest.  Anti-Corruption-Digest-May2015  With regards to China and Ukraine, the Digest states:

China

China has continued with its ongoing anti-corruption campaign.

In the energy sector, a senior executive at the state energy firm China Sinopec Group is reportedly under investigation for suspected “serious disciplinary violations”, a phrase which has become synonymous with allegations of corruption. China’s Central Commission for Discipline Inspection has reportedly confirmed the investigation but has not disclosed further details about the case. The Chairman of Sinopec, Fu Chengyu, said in an interview with Chinese media that the company supports “the government’s long-term anti-corruption effort, not just cracking down on illegal acts but disciplinary wrongdoings as well”.

In the healthcare sector, it has been reported that the head of Yunnan’s No. 1 People’s hospital is under investigation for allegedly receiving bribes of ¥35 million ($5.6 million/£3.6 million) in cash, 100 properties worth approximately $13 million (£8 million) and a number of car parking spaces. It is alleged that Dr. Wang Tianchao used his position to seek bribes related to medical device procurement and employment positions. Dr. Wang, who was reportedly in the running to become the head of the region’s food and drug regulator, has been removed from his post.

In the retail motor industry, a former top executive at Volkswagen’s joint venture with FAW Group Corporation has been sentenced to life in prison for allegedly accepting bribes. Shi Tao was reportedly convicted of taking ¥33 million ($5 million/£3.2 million) in bribes in exchange for giving business to advertisers and car dealers from FAW-Volkswagen. In a statement, Volkswagen said that it was aware of the case, noting that “globally, Volkswagen is strictly against any kind of illegal conduct, and attaches great importance that all applicable anti-corruption laws are adhered to”.

In its global efforts to trace alleged “economic fugitives”, the Chinese government has published a list of 100 individuals suspected of corruption. The “most wanted” list, which displays the individuals’ photographs, identification numbers and likely whereabouts, is said to be composed of former local government officials, police officers and accountants who are suspected of accepting bribes, misappropriating funds and money laundering.

Ukraine

A new law has been enacted requiring companies to have compliance programs in place. The law applies to most companies participating in public tenders and state-owned enterprises over a certain size and in essence requires companies to appoint a compliance officer with responsibility for implementing the compliance program and reporting to shareholders. The law does not include penalties for failing to implement a compliance program; however companies are encouraged to:

 Conduct regular risk assessments.

 Develop programs to raise employee awareness of anti-corruption.

 Include compliance provisions in contracts with third parties.

Despite the apparent lack of enforcement in place, it is said that officials may consider the establishment of a compliance program when deciding whether to pursue an action against a company.

SECURITIES COMPLAINTS

On February 11, 2015, Claire Rand filed a class action securities case against Alibaba Group Holding Ltd., Jack Yun Ma, Joseph C. Tsai, Jonathan Lu and Maggie Wu. RANDALIBABA

On March 3, 2015, the SEC filed a securities case against China Infrastructure Investment Corp., Li Xipeng and Wang Feng. SEC CHINA INFRASTRUCTURE

On March 13, 2015, Felipe Garcia filed a class action securities case against Lentuo International, Inc, Hetong Guo, Jing Yang and Yang Jiangyuluo. GARCIA LENTUO

On March 24, 2015, Placidius Silva filed a class action securities case against Alibaba Group Holding Ltd., Jack Yun Ma, Joseph C. Tsai, Jonathan Lu and Maggie Wu. ALIBABA PLACIDUSE

On March 25, 2015 Qiang Wang filed a class action securities case against Yoliku Tudou, Inc., Victor Wind, Chelfng Koo, and Michael Gexu. WANG YOKOU

On March 26, 2015 Edward Martindale filed a class action securities case against Yoliku Tudou, Inc., Victor Wind, Chelfng Koo, and Michael Gexu. MARTINDALEYOKOU TUDOU

On March 27, 2015, the SEC brought an action against Macquarie Capital (USA), Inc., Aaron Black, and William Fang, the Underwriters of Puda Coal, a Chinese company. SECPUDA COAL

On April 2, 2015, Troy Hung filed a class action securities case against Idreamsky Technology Ltd., Michael Xiangyu Chen, Jun Zou, Anfernee Song Guan, Jeffrey Lyndon, Ko, Steven Xiaoyi Ma, Erhai Liu, Mingyao Wang, David Yuan, Credit Suisse Securities (USA) LLC, J.P. Morgan Securities LLC, Stifel Nicolas & Company, In Corpora Ted, and Piper Jaffra. HUNGIDREAMY

On April 14, 2015 Rashid Jahm filed a class action securities case against Yoliku Tudou, Inc., Victor Wind, Chelfng Koo, and Michael Gexu. JAHM YOKOU

On April 15, 2015, James Patrick Griffith filed a class action securities case against Idreamsky Technology Ltd., Michael Xiangyu Chen, Jun Zou, Anfernee Song Guan, Jeffrey Lyndon, Ko, Steven Xiaoyi Ma, Erhai Liu, Mingyao Wang, David Yuan, Credit Suisse Securities (USA) LLC, J.P. Morgan Securities LLC, Stifel Nicolas & Company, In Corpora Ted, and Piper Jaffra. GRIFFITHIDREAM

On April 21, 2015, Francis J. Bonanno filed a class action securities case against Cellular Biomedicine Group, Inc., Wei Cao and Tony Liu. CELLULAR SECURITIES

On April 29, 2015, the SEC filed an insider trading case against two Chinese nationals, Xiaoyu Xia and Yangting Hu. SECHUAXU

On May 5, 2015, Abraham Jeremias, Roger Mariani and Michael Rubin filed a class action securities case against Idreamsky Technology Ltd., Michael Xiangyu Chen, Jun Zou, Anfernee Song Guan, Jeffrey Lyndon, Ko, Steven Xiaoyi Ma, Erhai Liu, Mingyao Wang, David Yuan, Credit Suisse Securities (USA) LLC, J.P. Morgan Securities LLC, Stifel Nicolas & Company, In Corpora Ted, and Piper Jaffra. JEREMIASIDREAM

On May 8, 2015, Steve Surrey filed a class action securities case against Alibaba Group Holding Ltd., Jack Yun Ma, Joseph C. Tsai, Jonathan Lu, Masayoshi Son, Daniel Young, Chee Hwa Tung, Walter The, Ming Kwauk, J. Michael Evans, and Jerry Yang. SURREY ALIBABA

On May 19, 2015, Paul Heller filed a class action securities case against Vishop Holding Ltd., Ya Shen and Donghao Yang. HELLERVISHOP

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

Best regards,

Bill Perry

US CHINA TRADE WAR–TRADE, TRADE ADJUSTMENT, 337/IP, PRODUCTS LIABILITY

Lotus Garden Reflection Summer Palace Beijing, China“TRADE IS A TWO WAY STREET”

“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”

PRESIDENT RONALD REAGAN, JUNE 28, 1986

US CHINA TRADE WAR NEWSLETTER JANUARY 11, 2015

Dear Friends,

As you may know, the blog posts are getting longer and longer as more trade and other actions take place against China. Because of the length, I, therefore, am breaking this post into two parts. This first post covers Trade, Customs, 337/IP and Products Liability.  The second post will cover FDA, Antitrust and Securities law.

On January 21st I gave a speech at the Brooklyn Law School on US China Trade Disputes.  Attached is a copy of the PowerPoint for the speech. BROOKLYN US CHINA TRADE POWERPOINT  Set forth is a link to Phonex Television, which covered the speech, http://v.ifeng.com/news/finance/201501/0166aceb-5bc1-48d8-a2f0-109a495aa914.shtml.  Phoenix Television has an estimated audience of 300 million people, and broadcasts in the PRC, Hong Kong, US, and other countries where there are Chinese communities.  It is the largest private Chinese-language broadcaster in the world.  In addition, the China Daily also covered the speech.  See http://usa.chinadaily.com.cn/world/2015-01/23/content_19386984.htm.

On January 21st, a major antidumping and countervailing duty case was filed against Uncoated Office Paper from China.  Attached is a copy of a short form of the petition along with a Wall Street Journal Article quoting me about the new petition.  The Next Trade Fight Office Paper – WSJ OFFICE PAPER CHINA BRAZIL PETITION

Finally, on January 22nd, Commerce announced its preliminary antidumping determination in the Tires from China case.  Attached is the Commerce Department factsheet.  TIRES AD PRELIM  The antidumping rates are from 19.17 to 36.26% with separate rates companies getting 27.72%.  The China wide rate is 87.99%.

The big problem with the Preliminary Determination is that except for the mandatory respondents, all the rest of the Chinese companies were hit with critical circumstances exposing US importers to millions of dollars in retroactive liability covering imports going back 90 days prior to the preliminary determination.

The only way to get rid of retroactive liability is to fight the case at the US International Trade Commission in the final injury case.  In the Solar Cells case on behalf of three importers I fought critical circumstances at the ITC and was able to eliminate close to $100 million in retroactive liability for US importers.  But it took a fight at the ITC to win the case as we won on a 4-2 vote at the ITC.  If the Commission had gone 3-3, we would have lost the argument.

If anyone has an interest in the Uncoated Paper case or the ITC investigation in the Tires case, please feel free to contact me.

NEWSLETTER

There have been major developments in the Solar Cells, trade, trade politics and trade, trade adjustment assistance, 337/IP, and Products Liability areas.

TRADE –– SOLAR PRODUCTS AND SOLAR CELLS CASES

SOLAR PRODUCTS

On December 16, 2014, Commerce issued its final determination in the Solar Products case. The Mandatory Respondents in the China case received rates ranging from 26.71% for Trina to 78.42% for Jinko and the Separate rate companies received rates of 52%, with the rest of China receiving an antidumping rate of 165.04%.

In addition, the Countervailing duty rates ranged from 27.64 to 49.79% with the all other rate being 38.72%.

Commerce also expanded the scope in the Chinese case to include all Chinese panels and modules with third country solar cells in them. The Fact Sheet, Federal Register notice and Issues and Decision Memos are attached.  CVD Solar Products I&D Memo-12-15-14 CVD Solar Products Final Determination-12-15-14 Certain Crystalline Silicon Photovoltaic Products Final Factsheet AD Solar Products I&D Memo-12-15-14 AD Solar Products Final Determination-12-17-14

The Taiwan rates are from 11.45 to 27.55% with the rest of Taiwan receiving a 19.5% rate.

On December 8, 2014, at the US International Trade Commission hearing on the injury case in the Solar Products case, in the attached testimony, WYDEN ACTUAL SPEECH SOLAR CELLS, Senator Wyden stated:

“In my role as Chairman of the Senate Finance Committee, I work very hard to make sure that trade benefits U.S. workers and companies. And a big part of my job is helping make sure that trade laws are enforced and our trading partners play by the rules.

The solar industry is an anchor of Oregon’s manufacturing base and is a central driver of Oregon’s innovation economy. It supports high skill, high wage jobs that are critical to helping attract investment and new economic opportunities for the 21st century economy.

Yet the solar industry has been under siege by its Chinese competitors for the last five years. It isn’t that American solar can’t compete; it is because China isn’t playing by the rules.

Chinese solar producers were bankrolled by the Chinese government. So they overproduced and dumped solar panels into the U.S. market at prices that were below the cost of production.

China viewed Solar World as such a threat, and these jobs as so strategically important, they used military computer hackers to steal sensitive documents from the company, according to charges filed by the Justice Department.

In short, China cheated and Oregon workers and families suffered. Jobs were lost, capacity diminished, and opportunities were drying up.

When I visited Solar World three years ago, I sounded the alarm. I said that China was taking America’s manufacturing jobs and the trade laws needed to be enforced.

After its own thorough investigation, this Commission found unanimously just two years ago that Chinese companies were injuring our industry by inundating the U.S. market with dumped and subsidized solar products. Trade remedies were imposed. I am grateful to this Commission for its efforts in the original investigation to redress unfair solar trade.

The trade laws worked, or so it seemed. But even while the first case was going on, the Chinese producers switched to a different tactic — keep dumping and subsidizing, but source non-Chinese cells through Taiwan and elsewhere to avoid paying the duties. Dumped and subsidized imports quickly returned, this time through the Taiwan loophole. The hard fought relief that the solar industry hoped to get from the original investigation was in jeopardy, and its fragile recovery in doubt.

The domestic industry was forced to defend itself again, filing the trade case that you are reviewing today. And this time, with the loophole closed, some improvement has started. Prices are no longer in free fall and solar companies like SolarWorld are starting to rehire for jobs that had once been lost. Just last month back in Oregon, I highlighted the role of your investigations in sparking hope that the industry might finally climb back from the brink.

I am back today to ask that this Commission secure the integrity of its original findings and conclude that Chinese and Taiwanese unfair trade has resulted in material injury and threatens additional material injury to U.S. producers, including those in Oregon. A strong determination from the Commission, coupled with antidumping and countervailing duties covering the full scope of unfair trade, will ensure the growth and resurgence of the domestic industry.

U.S. innovation and efficiency started the world-wide growth of solar and will continue to fuel that growth so long as unfair trade practices are fully addressed. Let us not allow the innovation economy to be undermined by innovative cheating on trade. Trade enforcement must keep pace with the times.

This Commission plays a critical role in ensuring that the trade rules are enforced as intended, that unfair trade is checked, and that American jobs and workers can compete on a level playing field. I again thank you for all of your hard work on this matter and urge you to fairly look at the facts and circumstances in this case, and apply the nation’s trade laws accordingly, so that the American solar industry can finally obtain lasting relief that it so urgently needs.”

Petitioners’ handouts from the ITC hearing are attached.  WILEY REIN SPEECH ITC KAPLAN ITC SPEECH

SOLAR CELLS

On December 31, 2014, the Commerce Department issued its preliminary determination in the first antidumping review investigation in the Solar Cells case. The Antidumping rates fell to 1.82% for Yingli Energy (China) Company (“Yingli”), 1.82% for separate rates companies and 238.56% for all other companies.

The reason for this low rate is that the Commerce Department refused to give a separate antidumping rate to one of the largest Chinese solar producer/exporter—Wuxi Suntech. As stated in prior newsletters, the Department is cracking down and making it much harder for Chinese companies with state ownership to obtain separate dumping rates. As the Department stated in its decision in the preliminary Solar Cells review investigation:

“we have concluded that where a government entity holds a majority ownership share, either directly or indirectly, in the respondent exporter, the majority ownership holding in and of itself means that the government exercises or has the potential to exercise control over the company’s operations generally, which may include control over, for example, the selection of management, a key factor in determining whether a company has sufficient independence in its export activities to merit a separate rate. Consistent with normal business practices, we would expect any majority shareholder, including a government, to have the ability to control, and an interest in controlling, the operations of the company, including the selection of management and the profitability of the company. Accordingly, we have considered the level of government ownership where necessary. . . .

Wuxi Sunshine, an exporter and company in the Wuxi Suntech Single Entity, reported that two of its three shareholders are state-owned companies. The business licenses of these two companies support Wuxi Sunshine’s assertions that these two shareholders are state-owned companies. The government of the People’s Republic of China (“GOC”) indirectly, through these two shareholders, owned a significant percentage of Wuxi Sunshine during the POR.

In this case, we preliminarily determine that the GOC, through its significant ownership interest in Wuxi Sunshine, is in a position to potentially control Wuxi Sunshine’s and therefore, the collapsed entities’ export activities. Moreover, we find the potential to control the collapsed entities’ export activities is further evidenced through the intertwined operations of the companies in the single entity. Because of the level of government ownership in Wuxi Sunshine, and the control or the potential to exercise control that such ownership establishes, we preliminarily conclude that Wuxi Sunshine, and thus the Wuxi Suntech Single Entity, does not satisfy the criteria demonstrating an absence of de facto government control over export activities. Consequently, we preliminarily determine that the Wuxi Suntech Single Entity is ineligible for a separate rate.”

Because of the fact that Wuxi Suntech was refused a separate rate, its new rate is the China Wide rate of 238.56% on its imports.

The Chinese separate rate companies were then given the lower antidumping rate of Yingli.

On the Countervailing duty side, Commerce issued preliminary rates ranging from 8.63 to 22.73% with 15.68% being assigned to all the other companies covered by the review.  The Federal Register notices and Decision Memos are attached.  AD Solar Panels 12-13 AR Prelim Results-12-31-14 CVD Solar Cells 12-12 AR Prelim Decision Memo-12-31-14 CVD Solar Cells Prelim Results- 12-31-14 AD Solar Cells 12-13 AR Decision Memo for Prelim Results-12-31-14

US CHINA SOLAR NEGOTIATIONS

As mentioned in my last update, on December 12th, USTR Michael Froman acknowledged that Washington and Beijing have held talks about the Solar cases for “some time”, but that no agreement had been reached. There was an opportunity for an Agreement when President Obama was in Beijing for the APEC meeting, but there was no agreement.

A major reason for this failure is because Solar World Americas, the petitioner in the U.S. trade remedy cases, stated that it could not accept the parameters that Chinese producers were willing to offer, and the U.S. government was unwilling to push the company to give ground. Knowledgeable sources have said that the floor price is the key sticking point.

From the Chinese companies’ point of view, the Commerce Department does not give good deals in antidumping and countervailing duty cases and thus it is very hard for the Chinese government to agree on a floor price, much higher than the Chinese export price, as the basis for any agreement.

The bottom line is that the Solar Products case will go to Antidumping and Countervailing Duty order, and any deal to succeed would have to be extremely unique, such as the US Canadian Lumber Agreement. The chance of such an agreement is probably small.

In addition, the Canadian government initiated a new antidumping and countervailing duty investigation against Solar Modules and Panels from China. The Complaint and Announcement are attached.   CANADIAN SOLAR COMPLAINT CANADIAN SOLAR ANNOUNCEMENT

Chinese solar cells and panels appear to be on the same trade path as other trade cases against China, as Europe, the US, Australia, India and now Canada have brought antidumping and countervailing duty cases against solar products from China. Many countries may soon block Chinese solar cells and panels out of their market.

IMPACT OF SOLAR CASE ON US INDUSTRY

On December 24, 2014, the China Daily published an article entitled “Commerce decision said to hurt US solar makers”. In the article, the China Daily states:

“US solar manufacturers are already feeling the impact of the latest US Commerce Department decision to levy tariffs on Chinese solar exports, according to the Coalition for Affordable Solar Energy.

Commerce’s decision to impose tariffs on solar modules from China will “undercut the growth of American solar jobs and hurt our domestic solar industry,” said Jigar Shah, president of the Coalition for Affordable Solar Energy (CASE), an organization that opposes the original petition filed by Solar World that led to the Commerce decision.

Since the decision, manufacturers like Georgia-based Suniva and Michigan-based Hemlock Semiconductor have been hurt, the company said in a Dec 17 statement. Hemlock Semiconductor said last week that it would close its $1.2 billion Clarksville, Tennessee, plant due to “ongoing challenges presented by global trade disputes,” according to the statement. The facility was never operational, but the closing would affect about 50 employees.

“As difficult as this is, the continued market adversity and complex political conditions have left no economically viable options for Hemlock Semiconductor to operate the site,” said Denise Beachy, president of Hemlock Semiconductor, in the release. “It is unfortunate for both the company and the community that these conditions have forced us to take this action.”

 SENATOR BROWN PROPOSES TOUGHER ANTIDUMPING AND COUNTERVAILING DUTY LAW THAT MAY VIOLATE WTO AGREEMENT AND WILL INJURE US IMPORTERS

On December 10, 2014, Democratic Senator Sherrod Brown introduced the attached legislation, SHERROD BROWN BILL, The Leveling the Playing Field Act, to amend the US antidumping and countervailing duty laws to make them tougher. Senator Brown wants to overturn court decisions that curtail the Commerce Department’s authority in using all facts available to punish Chinese exporters and US importers and also to make it harder for China to become a market economy country. Senator Brown stated in the attached press release, SHERROD BROWN PRESS RELEASE:

“There are encouraging signs of a comeback in American manufacturing, but that progress could be lost if we don’t have strong trade laws to level the playing field. Foreign companies who don’t play by the rules are actively trying to undermine the effectiveness of our trade laws. This bill would restore strength to our trade laws and ensure that American companies can compete in a fair marketplace.”

According to the Press Release,

“The Leveling the Playing Field Act restores strength to the AD/CVD statutes. Specifically, the bill:

  • Maintains Commerce’s discretion to use adverse facts available when a mandatory respondent does not cooperate with an investigation and clarifies that the agency is not obligated to determine what a margin would be if the respondent had participated;
  • Increases the number of factors and the length of time the ITC should use to evaluate injury or the threat of injury to U.S. producers to ensure a determination is based on a comprehensive assessment of a sector’s situation;
  • Closes the “new shipper” loophole used by companies to circumvent AD/CVD duties;
  • Increases penalties for failure to provide a country of origin certificate for merchandise covered under AD/CVD orders or for falsifying the information on the certificate;
  • Clarifies that Commerce has the authority to determine whether to include voluntary respondents in an investigation;
  • Clarifies that Commerce does not have to conduct an additional investigation to prove that disregarded product values used in non-market economy investigations are subsidized or dumped if the record already shows the product values to be distorted; and
  • Clarifies existing statutory provisions used to assess whether a country’s non-market economy status should be maintained.”

FACTS AVAILABLE CHANGE

One of the changes Senator Brown proposes making to the US antidumping law is to make it easier for the Commerce Department to use all facts available to punish foreign companies and US importers, where the foreign company does not cooperate to the best of its ability in the investigation. As the bill states in Section 2(d)(1)(B) and (2):

“SUBSIDY RATES AND DUMPING MARGINS IN ADVERSE INFERENCE DETERMINATIONS:

(B) in the case of an antidumping duty proceeding, use— ‘‘(i) a dumping margin based on any individual sale of the subject merchandise calculated with respect to any exporter or producer involved in the proceeding during the investigation or review,

‘‘(ii) an individual weighted average dumping margin calculated with respect to any exporter or producer involved in the proceeding during the investigation or a review

‘‘(iii) any dumping margin alleged in a petition filed under section 732(b) that was relied on by the administering authority to initiate the antidumping duty investigation, or

‘‘(iv) any dumping margin found in another antidumping duty proceeding with respect to a class or kind of merchandise that is the same or similar to and from the same country as subject merchandise involved in the proceeding.

‘‘(2) DISCRETION TO APPLY HIGHEST RATE.—

The administering authority has the discretion under paragraph (1), in selecting from among facts otherwise available, to apply any of the countervailable subsidy rates or dumping margins specified under that paragraph, including the highest such rate or margin.

‘‘(3) NO OBLIGATION TO MAKE CERTAIN ESTIMATES OR ADDRESS CERTAIN CLAIMS.

If the administering authority uses an adverse inference under subsection (b)(1)(A) in selecting among facts 8 otherwise available, the administering authority is not required, for purposes of subsection (c) or for any other purpose— . . . .

‘‘(B) to demonstrate that the countervailable subsidy rate or dumping margin used by the administering authority reflects the commercial reality of the interested party.”

These proposed changes to the law are a direct response to a set of decisions by the Court of International Trade and the Court of Appeals for the Federal Circuit finding that the law requires Commerce when making an all facts available determination to not simply use a presumption. Pursuant to the US antidumping and countervailing duty law, 19 USC 1677e(c), when the Commerce Department uses secondary information because the Chinese company has refused to cooperate or has not provided the information on time to replace the information provided Commerce “shall to the extent practicable, corroborate that information from independent sources that are reasonably at its disposable.” The Courts have interpreted this to mean that the secondary information must be “commercially reasonable”.

Those requirements, in turn, came from the antidumping and countervailing duty law and also from the WTO Antidumping Agreement, which the United States has signed, and states in Annex II, Best Information Available paragraph 7:

“If the authorities have to base their findings, including those with respect to normal value, on information from a secondary source, including the information supplied in the initiation of the investigation [the Petition], they should do so with special circumspection. In such cases, the authorities should, where practicable, check the information from other independent sources at their disposal, such as published price lists, official import statistics, and customs returns, and from the information obtained from other interested parties during the investigation.”

In fact, on December 18, 2014 in the attached United States – Countervailing Duty Measures on Certain Products from China decision, KEY FINDINGS wto2014_3483a FINDINGS AND CONCLUSIONS COMPLETE WTO REPORT, the WTO Appellate Body found the United States in violation of the WTO Agreement with regards to US countervailing duty cases against China on the very issues that Senator Brown wants to change the language of the law. Specifically, one of the WTO’s key findings is:

“Use of facts available: . . .

 The Appellate Body recalled that Article12.7 requires that an investigating authority [Commerce Department] must use those facts available that reasonably replace the missing “necessary” information that an interested party failed to provide. The Appellate Body also reiterated that ascertaining reasonable replacements for the missing information involves a process of reasoning and evaluation on the part of the investigating authority, although the evaluation that is required, and the form it may take, depend on the particular circumstances of a given case, including the nature, quality and amount of the evidence on the record and the particular determinations to be made. With respect to China’s claim of error under Article 11 of the DSU, the Appellate Body found that the Panel failed to address each of the 42 instances of the USDOC’s use of “adverse” facts available challenged by China.”

As the WTO further stated in its determination:

“. . . . Accordingly, the Appellate Body has explained that “there has to be a connection between the ‘necessary information’ that is missing and the particular ‘facts available’ on which a determination under Article 12.7 is based.” Therefore, “an investigating authority must use those ‘facts available’ that ‘reasonably replace the information that an interested party failed to provide’, with a view to arriving at an accurate determination.” The Appellate Body has further explained that “the facts available” refers to those facts that are in the possession of the investigating authority and on its written record. As determinations made under Article 12.7 are to be made on the basis of “the facts available”, “they cannot be made on the basis of non-factual assumptions or speculation.” Furthermore, in reasoning and evaluating which facts available can reasonably replace the missing information, “all substantiated facts on the record must be taken into account” by an investigating authority.”

In addition, in a long series of cases beginning in 1934 with a decision by the Court of Customs and Patent Appeals, the forerunner of the Court of Appeals for the Federal Circuit, C. J. Tower & Sons v. United States, 71 F. 2d 438 (C.C. P. A. 1934), Courts have held that US antidumping and countervailing duty laws are remedial, not penal statutes, and, therefore, respondents are not entitled to full due process of law. As the Court of Customs and Patent Appeals stated:

“[W]e cannot escape the conviction that the expressed purpose of Congress, in the Antidumping Act of 1921, was to impose not a penalty, but an amount of duty sufficient to equalize competitive conditions between the exporter and American industries affected . . . . It follows that the Antidumping Act of 1921 is not repugnant to the provisions of said Amendment V [to the U.S. Constitution], as denying to the importer due process of law . . . .”

C.J. Tower & Sons v. United States, 21 C.C.P.A. 417, 427–28, 71 F.2d 438, 445–46 (1934).

Federal Courts have found that the antidumping and countervailing duty laws are not penal statutes but remedial statutes. If the US antidumping and countervailing duty laws were truly penal statutes, US importers and Chinese exporters would be entitled to full due process of law under the US Administrative Procedure Act, including the right to a full trial proceeding, the right to cross examine witnesses and a decision by a neutral Administrative Law Judge. Chinese Companies and US importers, however, have no such right and that is why decisions are made by the US Commerce Department, which can take a prosecutorial approach to these cases.

In other words, in the face of WTO determinations and similar decisions of the Court of International Trade and the Court of Appeals for the Federal Circuit, Senator Brown’s amendments are to eliminate the requirement that any AFA determination reflect commercial reality and be a “reasonable” replacement for the missing information….”

The WTO Appellate Body went on to state:

“We also note that the instances challenged by China, and with respect to which it requests that we complete the legal analysis, include several instances wherein the USDOC [Commerce Department] relied on “adverse” facts available in support of its public body, benefit, specificity and export restraints determinations. The Panel found, however, with respect to China’s claim under Article 1.1(a)(1) of the SCM Agreement, that “in the 12 countervailing duty investigations challenged by China the United States acted inconsistently with Article 1.1(a)(1) of the SCM Agreement when the USDOC found that SOEs [State Owned Enterprises] public bodies based solely on the grounds that these enterprises were (majority) owned, or otherwise controlled, by the Government of China.” The Panel also found that the USDOC acted inconsistently with the obligations of the United States under Article 2.1(c) of the SCM Agreement in making its specificity determinations in the context of these investigations. The United States does not challenge these findings on appeal.

Nor does the United States challenge the Panel’s finding that “the USDOC’s initiation of two countervailing duty investigations [–i.e. Magnesia Bricks and Seamless Pipe–] in respect of certain export restraints is inconsistent with Article 11.3 of the SCM Agreement.” These findings therefore stand. Furthermore, we have found above that the USDOC acted inconsistently with the obligations of the United States under Article 14(d) and Article 1.1(b) of the SCM Agreement in making its benefit determinations in the context of the investigations in OCTG, Line Pipe, Pressure Pipe, and Solar Panels . . . . . .”

In its conclusion, the WTO determines:

“with respect to the Panel’s findings, in paragraphs 7.325 and 8.1.vii of the Panel Report, in respect of the [Commerce Department’s] USDOC’s use of “adverse” facts available in the Pressure Pipe, Line Pipe, Citric Acid, Lawn Groomers, OCTG, Wire Strand, Magnesia Bricks, Seamless Pipe, Print Graphics, Drill Pipe, Aluminum Extrusions, Steel Cylinders, and Solar Panels countervailing duty investigations, reverses the Panel’s finding that China had not established that the USDOC acted inconsistently with the obligations of the United States under Article 12.7 of the SCM Agreement by not relying on facts available on the record; and finds that it is unable to complete the legal analysis in this regard.”

In light of the many arguments by US trade officials arguing that China is violating the WTO agreement, the question must be asked: which country is violating the WTO Agreement now?

More importantly, one should understand that even when Commerce has been reversed by the Courts after Commerce has applied all facts available; this does not mean that the Chinese or any foreign company can begin shipping to the United States at a low rate again. The All Facts Available (“AFA”) rate that Commerce determines is always bad and has the effect of often shutting the foreign company out of the US market for years. The real impact of the AFA rate is not on the foreign exporter. It is on the US importer, the US company, which imports products into the US, and can be exposed to retroactive liability for antidumping rates as high as 100, 200, 300 or even more than 600% and millions, if not 10s of millions, of dollars in retroactive antidumping and/or countervailing duties.

The innocent party in these cases is the US importer, which is often an independent actor with no relationship to the Chinese exporter. The importer often has no control over whether or if the foreign/Chinese company responds to the antidumping or countervailing duty investigation or how the Chinese company responds. The reality is that once the US importer imports under an antidumping and/or countervailing duty order, the US importer is exposed to millions, if not 10s of millions, of dollars in retroactive liability and bankruptcy. As one importer told me, importing under an antidumping order is like importing cancer.

MARKET ECONOMY CHANGE

In addition, Senator Brown’s bill proposes to amend the US Antidumping and Countervailing Duty Law to provide an additional condition before China can be considered a market economy country. That provision specifically provides:

 SEC. 8. CLARIFICATION OF FACTORS FOR DETERMINING WHETHER A COUNTRY IS A NONMARKET ECONOMY COUNTRY.

Section 771(18)(B) of the Tariff Act of 1930 (19 U.S.C. 1677(18)(B)) is amended. . . (3) by inserting after clause (v) the following:

‘‘(vi) the extent to which the government of the foreign country enforces and administers its laws, legal and administrative procedures, and other policies in an open and transparent manner that affords all parties, whether foreign or domestic, due process and equal and non-discriminatory treatment under those laws, procedures, and policies . . . .

But the most discriminatory law may be the US nonmarket economy antidumping law, which refuses to treat China as any other country in the World, including Iran. Pursuant to US antidumping law, since China is a nonmarket economy country, Commerce refuses to use actual prices and costs in China to determine whether a Chinese company is dumping.   Dumping is defined as selling at prices in the United States below prices in the home market or below the fully allocated cost of production.  Since Commerce refuses to use actual costs and prices to determine whether the company is dumping, Commerce constructs a cost for the Chinese company using consumption factor information from China and “surrogate” values from import statistics in 5 to 10 different surrogate countries. Because of the surrogate values from surrogate countries, it is impossible for the Chinese company, never mind the US importer, to know whether the Chinese company is dumping.

The United States, however, faces a looming deadline under the WTO Agreement with regard to the application of this nonmarket economy methodology to China. Section 15 of the China WTO Accession Agreement, which originated from the US China WTO Accession Agreement, provides:

 “Price Comparability in Determining Subsidies and Dumping . . .

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

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

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

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

But where did the 15 years come from? It came from a demand by the United States in the US-China WTO Accession Agreement, so in accordance with a Treaty signed by the United States, on or after December 11, 2016 Commerce may no longer use a non-market economy methodology that is not based on a strict comparison with domestic prices or costs in China.

But the United States’ apparent position is that since the 15 years is in a Treaty, which was demanded by the United States, and not the US Antidumping and Countervailing Duty law, the United States does not have to follow the demand, which it made.

So what happens when the United States does not enforce and administer its “laws, legal and administrative procedures, and other policies in an open and transparent manner that affords all parties, whether foreign or domestic, due process and equal and non-discriminatory treatment under those laws, procedures, and policies”? What happens when the United States itself violates the WTO agreement?

 IMPORT ALLIANCE FOR AMERICA

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

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

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

Recently, the Import Alliance established its own website. See http://www.importallianceforamerica.com.

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

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

Congressmen have agreed to meet importers to listen to their grievances regarding the US antidumping and countervailing duty laws. In addition to contacting US importers, we are now contacting many Chinese companies to ask them to contact their US import companies to see if they are interested in participating in the Alliance.

At the present time, Commerce takes the position that it will not make China a market economy country in 2016 as required by the WTO Accession Agreement because the 15 years is in a treaty and not in the US antidumping and countervailing duty law. Changes to the US antidumping and countervailing duty law against China can only happen because of a push by US importers and end user companies. In US politics, only squeaky wheels get the grease.

On August 7, 2014, we held an organizational meeting in Beijing, China at the headquarters of China Ocean Shipping Company (“COSCO”) with interested Chambers of Commerce and Chinese companies to explain the project in more detail and to seek help in contacting US importers about the Alliance.

We spoke to about 40 attendees, including attendees from the legal departments of the top 10 chambers of commerce, including Chemicals, Machinery and Electronics, Light Industrial Products, and Food, and the Steel, Wood Products and Hydraulics and Pneumatics & Seals Association.

In addition to describing the Import Alliance and the issues regarding 2016 in the US China Accession Agreement, we also discussed the US China Trade War in general. Introductory videos for the Organizational Meeting from Cal Scott of Polder Inc., the President of the Import Alliance, can be found at the following link https://vimeo.com/103556227 and for former Congressmen Don Bonker and Cliff Stearns of APCO can be found at the following link https://vimeo.com/103556226. The PowerPoint we used to describe the Import Alliance, the specific provisions in the US China WTO Agreement and the Trade War in general is attached FINAL WEB BEIJING IMPORT ALLIANCE POWERPOINT.

TRADE POLITICS AND TRADE AGREEMENTS

ONE ISSUE MOVING IN CONGRESS NEXT YEAR—TRADE

As stated in the last post, the November 4th Election and the Republican wave will have a dramatic impact on trade policy in Washington DC in 2015. On December 17, 2014, the last House of Representatives Race was decided in Arizona, and the Republican candidate won. In the new 2015 Congress, Republicans control the House 247 Republicans to 118 Democrats, which is the largest Republican majority in 87 years. In the Senate, with the defeat of the incumbent Democratic Senator Mary Landrieu in Louisiana by the Republican candidate, the Republicans control the Senate 54 to 46. In the Senate, however, Republicans will need Democratic votes to get over a 60 vote barrier created by the Filibuster Rule and also more Democratic votes if they want to overturn a Presidential veto.

On December 3rd in a speech to the Business Round Table in New York, President Obama agreed to work with Congressional leaders, including Republican leaders, to pass Trade Promotion Authority and the trade agreements. President Obama also stated that he needs to gain support from labor unions and environmental groups, which have been opposed to the trade agreements.

As President Obama stated, “I’m going to be talking to McConnell … and Boehner, Reid and Pelosi, and making a strong case on the merits as to why this has to get done.” The President further stated, “We have to be able to talk directly to the public about why trade is good for America, good for American businesses and good for American workers, and we have to dispel some of the myths.”

But the President first has to deal with his own Democratic party,

“Part of the argument that I’m making to Democrats is, don’t fight the last war. If you want to … locate in a low-wage country, with low labor standards and low environmental standards, there hasn’t been that much preventing you from doing so.”

“Ironically, if we are able to get Trans-Pacific Partnership done, then we’re actually forcing some countries to boost their labor standards, boost their environmental standards, boost transparency, reduce corruption, increase intellectual property protection. Those who oppose these trade deals, ironically, are accepting a status quo that is more damaging to American workers.”

Sen. Orrin Hatch, R-Utah, who is the new Chairman of the Senate Finance Committee, welcomed the Presidents statement, saying, “If past experience has taught us anything, it’s that we need presidential leadership to get TPA over the finish line. The president’s influence, particularly among members of his own party, will be a vital component to congressional efforts.”

US CHINA TRADE AGREEMENTS

 INTERNATIONAL TECHNOLOGY AGREEMENT (“ITA”) FALLS APART IN GENEVA

After President Obama’s “successful” APEC trip to Beijing in November, the hopes for an International Technology Agreement (“ITA”) were high, but the hopes disappeared when the Agreement came back to Geneva

With regards to ITA, in Beijing at the APEC meeting, the US government announced on November 10th that it had convinced China to eliminate tariffs on tech goods like advanced semiconductors and medical devices. The Chinese government agreed to U.S. demands to eventually eliminate tariffs on advanced semiconductors known as MCOs, magnetic resonance imaging (MRI) machines, and high-tech testing equipment, but the deal did not include tariff elimination on flat-panel displays.

But the WTO talks feel apart on December 12th because China and South Korea failed to reach agreement over liquid crystal display screens after eight days of negotiations. China wanted all countries to accept the same terms that it negotiated bilaterally last month with the U.S., which did not include LCD screens, while South Korea wanted them in.

The core group negotiating the updated ITA includes the EU, U.S., Japan, China, South Korea, Australia, Switzerland, Norway, New Zealand, Singapore, Taipei, Malaysia, Thailand, the Philippines, Hong Kong, Costa Rica, Israel, Croatia, Turkey, Bahrain, Montenegro, Iceland, El Salvador, Guatemala, Colombia, Dominican Republic and Albania. A fact sheet circulated by the White House noted that the expansion of the ITA pact would eventually eliminate tariffs on roughly $1 trillion in annual global sales of information technology products and boost the annual global GDP by an estimated $190 billion.

On December 12th the USTR issued the attached statement by US WTO Ambassador Michael Punke, USTR STATE ITA FAILURE, which states in part:

“The United States is grateful for all the hard work done this week to bring us this close to an ITA expansion agreement. We are gratified that the U.S.-China breakthrough last month allowed us all to get back to the table and that so much of the US-China breakthrough agreement has been embraced by our plurilateral process. Indeed that bilateral breakthrough is the pillar upon which a potential plurilateral deal rests. We appreciate this was widely recognized by participants. . . .

Through the consultations over the last few weeks, it became clear that certain Members had important interests that were not fully captured by the bilateral agreement. And those members came a long way toward accepting 99% of that agreement, but asked that small adjustments be made in order to be able to accept the deal. . . .

Like everyone in the room, we are disappointed not to be celebrating a deal this week. We missed a big opportunity. All of us will need to go back to our capitals and reflect hard on next steps.”

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

 TPA FACED HEADWINDS IN CONGRESS BUT THEN THE ELECTION HAPPENED

As mentioned in past blog posts, in the trade world, the most important developments may be the Trans Pacific Partnership (TPP), Trans-Atlantic (TA)/ the Transatlantic Trade and Investment Partnership or TTIP negotiations and the WTO.  The TPP is a free trade agreement being negotiated by officials from the U.S., Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam. These trade negotiations could have a major impact on China trade, as trade issues become a focal point in Congress and many Senators and Congressmen become more and more protectionist.

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

As mentioned in prior blog posts, on January 29, 2014, the day after President Obama pushed the TPA in his State of the Union speech in Congress, Senate Majority leader Harry Reid stated that the TPA bill would not be introduced on the Senate Floor.

But then came the November 4th Republican wave election changing Trade Politics dramatically in Washington DC. Elections have consequences and in 2015 Republicans have taken the Senate and increased their numbers in House.

To summarize, on January 9, 2014, the Bipartisan Congressional Trade Priorities Act of 2014, which is posted on my blog in the January 2014 post, was introduced into Congress. The TPA bill gives the Administration, USTR and the President, Trade Promotion Authority or Fast Track Authority so that if and when USTR negotiates a trade deal in the TPP or the Trans-Atlantic negotiations, the Agreement will get an up or down vote in the US Congress with no amendments.

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

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

On July 17th, all Republican members of the House Ways and Means Committee sent a letter to USTR Froman, which is posted on my blog, urging the Administration to build support for Trade Promotion Authority (TPA) and directing the Administration not to complete the Trans-Pacific Partnership (TPP) before TPA is enacted into law.

On November 4th, the Republican Wave Election took place.

Now the story continues . . . .

As indicated above, on December 3, 2014 at a Business Roundtable Meeting in New York City President Obama vowed to continue working with Congressional leaders on the TPA and the TPP deals.

Although there was substantial optimism about the President’s ability to work with the Republican Congress on trade policy, on December 5th Congressman Sander Levin, the top Democrat on the House Ways and Means Committee, continued to express skepticism over the Trans-Pacific Partnership. Congressman Levin told reporters that his many questions on the TPP regarding issues, such as agricultural market access, labor rights and currency manipulation rules, remain unanswered. He called on the Obama administration to give Congress a more prominent role in closing the deal. As Congressman Levin stated,

“I want there to be set up some structure so that there is regular consultation with the committees of jurisdiction as the negotiations ensue so that there is … full discussion of what is in the documents, and of what is being proposed by the administration, and what are the positions of other countries, and what are the likely bottom lines of this administration.”

Although the USTR has been continually briefing Congress on the TPP, Levin claimed that policy amounts to “considerable consultation” without “meaningful involvement” from the legislative branch. Levin stated that the administration’s positions on key areas remain shrouded in mystery. “At this point, can I tell you what is the administration’s position on tobacco? The answer is no. Can I tell you where they are on agriculture? No.”

Levin further stated:

“If you put the focus on TPA when you have so many outstanding issues, essentially what it does is force or stimulate members to say ‘yes’ or ‘no’ to TPP before so many of the outstanding issues have been resolved. So essentially I think it makes it more difficult, not less difficult, to get an effective TPP.”

On December 5, 2014, four Democratic Congressmen sent the attached letter, ACTUAL LETTER DEMS LABOR, to the Obama Administration stating that the Administration should use the TPP negotiation to push for labor reforms regarding the use of child and forced labor, specifically in Vietnam, Mexico, Peru and Malaysia. The four Congressmen/women stated:

December 4, 2014

In May, we wrote to you with 149 of our colleagues calling on you not to pursue the same approach to labor rights in free trade agreements that has failed in past pacts. In response, you noted that our free trade partners have made efforts to improve their labor conditions and that the proposed Trans-Pacific Partnership (TPP) “allows the United States to take a leading role in shaping global trade policy by raising standards, allowing us to make progress toward a global trading system that reflects our core values.”

However, a recent report by the Labor Department’s Bureau of international Labor Affairs (ILAB) disputes that assertion, and we have no indication that U.S. negotiators are taking a new approach to ensure labor rights are protected.

ILAB’s annual List of Goods Produced by Child Labor or Forced Labor report sheds light on some of the worst forms of labor abuses worldwide, and highlights the countries that produce goods using child and forced labor. Vietnam, Mexico, Peru, and Malaysia, one-third of the nations included in the TPP, were all cited for labor abuses in the report.

We are following up with you because we believe it is important that you take action to ensure that real, meaningfully enforceable labor protections are in the TPP, and we request a briefing for Members of Congress to better understand what specific new measures are being developed and what new assurances are being put in place during TPP negotiations.

The report has particularly troubling findings on several TPP member nations. Only four countries globally are cited for forced and child labor in their apparel sector, including Vietnam.

Over the course of the last year of TPP negotiations, electronics products from Malaysia were added to the list of goods produced through forced labor. Malaysia is one of only seven countries in which the Labor Department found worsening child or forced labor conditions in 2014. In addition, the report identified child labor violations in eleven sectors in Mexico- the fifth broadest usage of child labor cited in the report. By comparison, China uses child labor in six sectors.

Free trade agreements with nations that violate international child labor and forced labor standards not only undermine our moral authority, but they also capitalize on the lack of oversight and regulation in developing nations. Here in this country, we have fought hard to protect our workers, yet, our free trade policy undermines those protections by sending American jobs to countries that do not play by the rules. . . .

We have a responsibility to ensure that under no circumstances is it acceptable for children to work in sweatshops to produce the goods we consume. We can and must do better.

It is critically important that we make stronger efforts to end these worker abuses, with the Administration’s ongoing push for trade promotion authority, these ongoing issues must first be addressed.

Reps. Rosa DeLauro, D-Conn., George Miller, D-Calif., Loretta Sanchez, D-Calif., and Mark Pocan, D-Wis.

It should be noted as reported in past blog posts, the United States too uses “forced labor” prison labor to produce products. In fact, the Justice Department’s Business Development Group, Federal Bureau of Prisons, is presently soliciting manufacturing business from various companies. The Federal Bureau of Prisons is presently producing wood flooring and other products in the United States. I have been told that Canada recently stopped exports of wood flooring products from the United States, which were produced with prison labor.

In response to the Congressional letter, President Obama stated that his effort to revive TPA — which has not been in effect since 2007 — will require outreach to labor unions, which have traditionally been skeptical of trade liberalization.

On December 8th, labor unions, environmentalists and other opponents of the Trans-Pacific Partnership on Monday descended on Washington, D.C., to protest the latest round of negotiations, reiterating their claims that the pact will ravage the American workforce and place business interests above those of consumers.

On December 11, 2014 incoming House Ways and Means Trade Subcommittee Chairman Republican Pat Tiberi of Ohio, stated that while Republicans have been pleased with President Barack Obama’s bipartisan approach to a growing slate of trade policy issues next year, the White House will need to step up its engagement to ensure optimal results. In response to President Obama’s Business Roundtable speech, Tiberi stated:

“We are hopeful, but one speech does not provide enough leadership to get all this done. The trade representative is a very good one and we look forward to working with him. But at the end of the day, it’s got to be the President and he is going to have to show leadership and I think he may on this one.”

Tiberi, who has been in the House for 14-years and has served on Ways and Means since 2007, stated that he will do all he can to make sure the president’s bipartisan sentiments trickle down to the members on his panel and throughout the committee, stating:

“I am a big believer in trying to work with the other side. Having the President provide leadership on trade — and it appears as though he may — is pretty exciting with a Republican Senate and a Republican House in what is clearly the best opportunity since the President became President to do something on trade.”

Tiberi further stated:

“I think giving authority to persons within the administration to negotiate in the best interests of the United States is the best way to actually get a trade agreement, because there are a lot of complex issues that go into these negotiations both from our perspective and our potential trading partners’ perspective as well.”

Tiberi also stated that while lawmakers should always urge the administration to be more forthright about its negotiating efforts, the criticisms of trade agreements as job killers are largely misplaced, as those arguments ignore the jobs created by opening export markets and creating new investment opportunities. As Tiberi stated, “If the shoe were on the other foot and I were the U.S. trade representative, I wouldn’t necessarily be offended because I think we could always do a better job on the issue of transparency.”

On December 14th, Prime Minister Abe won reelection in Japan with a landslide, which will give Japan more flexibility in the TTP negotiations.

On January 5, 2015, after the new Congress was sworn in, US Senator Bernie Sanders, an independent that is on the Democratic side, attacked the Obama administration for an “incomprehensible” lack of transparency surrounding the ongoing Trans-Pacific Partnership negotiations and called for the release of the full version of the current TPP text.

In a letter to U.S. Trade Representative Michael Froman, Sanders said it was “troubling” and “unacceptable” that he and other lawmakers have only been able to get a thorough look at the TPP deal through unofficial leaks of various chapters. The Senator further stated:

“It is incomprehensible to me that the leaders of major corporate interests who stand to gain enormous financial benefits from this agreement are actively involved in the writing of the TPP while, at the same time, the elected officials of this country, representing the American people, have little or no knowledge as to what is in it. In my view, this is simply unacceptable.”

Sanders emphasized that Congressional review of the TPP deal text is mandatory because any trade agreement will not be open for amendments if the Administration reaches a deal to renew the president’s expired Trade Promotion Authority this year.

The Senator gave the USTR a deadline of Jan. 16 to provide him with a copy of the full composite text, without redactions, and requested that staff and experts of his choosing also be allowed access to the documents to take notes and “analyze the relevant statutory and economic implications” of the deal.

The USTR has repeatedly stressed that it will publish the TPP text “well before” it is signed to invite further comment from stakeholders. The agency also says it has a longstanding policy of giving members of Congress access to confidential documents on request, but some lawmakers have complained of procedural problems in getting access to the dcouments.

Sanders added that if his request is not fulfilled, he would like a full legal justification for USTR’s refusal and also vowed to file a bill that would mandate the publication of trade negotiating texts at the request of any member of Congress.

The Vermont independent sharply criticized Froman’s office for placing the interests of large multinational corporations over those of U.S. citizens and for gradually chipping away at the legislative branch’s oversight of international trade, stating:

“The Constitution of the United States gives Congress ‘the authority to regulate commerce with foreign nations. That is not my language. That is the Constitution of the United States of America.”

On January 6, 2015, after meeting in Washington D.C., US and Mexican government officials agreed to continue their efforts to finalize the ongoing TPP negotiations as soon as possible. In a Joint Statement the two countries said:

“We have made significant progress over the past year in setting the stage to finalize a high-standard and comprehensive agreement. With the end coming into focus, the United States, Mexico and the other 10 TPP countries are strongly committed to moving the negotiations forward to conclusion as soon as possible. The substantial new opportunities for U.S. and Mexican exporters that the TPP will offer will be enhanced by our work together in the HLED.”

A senior White Official also stated:

“We’re working closely together to conclude the historic Trans-Pacific Partnership trade agreement early this year. The leaders are most likely to focus on the dynamics of the various countries as we’re coming to the end of the negotiations of TPP. We think that there’s a chance to get this done in the relatively near future.”

On January 7, 2015, the AFL-CIO labor union called on the Obama administration to push for far-reaching improvements to Mexico’s labor and human rights regime and raised the possibility of dropping Mexico from the 12-nation Trans-Pacific Partnership talks if those reforms are not swiftly implemented.

AFL-CIO President Richard Trumka stated in a letter to President Obama:

“Mexico must eliminate the corrupt system of labor boards and allow workers to choose their representatives in a democratic manner free from intimidation. As a party to the ongoing Trans-Pacific Partnership negotiations, U.S. negotiators must demand that Mexico implement changes prior to entering into any trade agreement, as current laws are not in compliance with any credible labor chapter. . . .

The U.S. and Mexican government must work cooperatively to ensure that goods made with forced and child labor are not exported into the U.S. market. The Mexican government must vigorously enforce its labor laws in the agricultural sector and step up its efforts to combat child labor — not by criminalizing child workers and their families, but by providing educational opportunities and incentives.”

On January 7, 2015, Republican leaders started moving in both chambers of the U.S. Congress to build the case for renewing TPA indicating that a bill will be introduced in the early part of the year.

Senate Majority Leader Mitch McConnell, R-Ky., stated that talks to reinstate Trade Promotion Authority have been underway for some time and reiterated his belief that trade remains a critical area in which the Republican majority in Congress and President Barack Obama can find common ground, stating:

“We’re in active discussion on … trade promotion authority. It’s an enormous grant of power, obviously, from a Republican Congress to a Democratic president, but that’s how much we believe in trade as an important part of America’s economy.”

But neither McConnell nor Senate Finance Committee Chairman Orrin Hatch, R-Utah, could offer a specific
timetable for the legislation to be introduced, indicating that lawmakers are still ironing out the final details of the bill.

As McConnell further stated, “We think this is an area where we can make progress, and you can look for us to act on TPA,” I can’t give you the exact timing right now, or if I could, I probably wouldn’t yet.”

All of the political gamesmanship between Obama and Congress appears to have disappeared.  A spokesman for House Speaker John Boehner, R-Ohio, on Tuesday issued a statement urging the president to highlight the need for fresh TPA legislation in speech to Michigan auto workers.

Boehner spokesman Cory Fritz stated,

“The president can begin this year with yet another campaign-style event to try and take credit for an economy that Americans know could be doing a lot better, or he can stand up to those in his own political party and begin building a coalition to help boost American exports and job creation,” .

McConnell said he was happy that the president had become a “born-again free trader,” but stressed that Obama would have to weather resistance from traditional Democratic trade opponents if he is to be taken seriously in the quest to reinstate TPA.

“The big challenge for the president is going to be to get his own members to give him the authority to negotiate this deal and to send it up to us. He’s going to have to stand up to the AFL-CIO, he’s going to have to stand up to the political left and his party and help us do something important for the American people in the middle, the moderate center.”

TPP FOR CHINA??

On October 15th, the Peterson Institute for International Economic (”IIE”) released a study touting the benefits of a theoretical free trade agreement between China and the United States, including increased income and export gains, while also acknowledging that such an agreement could lead to 500,000 to 1 million lost U.S. jobs over a 10-year span. The opening chapter as well as an IIE powerpoint are attached.  IIE FREE TRADE AGREEMENT CHINA US CHINA FTA FIRST CHAPTER

On December 3, 2014, former U.S. Trade Representative Carla Hills in comments to the National Foreign Trade Council called for a free trade arrangement between the U.S. and China as a way of easing economic tensions and promoting better trade flows for international supply chains. Hills listed three possible options: bringing China into the Trans-Pacific Partnership (TPP) agreement; negotiating a separate free trade agreement with China; or completing a series of agreements, such as a bilateral investment treaty or through an expanded Information Technology Agreement, which would liberalize U.S-China trade on a sector basis.

Hills, who sits on the Board of the Peterson Institute for International Economics (IIE), pointed to the Study. The Report stated that trade could increase exponentially on both side, but could lead to 500,000 to 1 million lost U.S. jobs over a 10-year span.

As stated in my prior post, that is where Trade Adjustment Assistance for Companies comes into play. The Peterson study contends that because the economic benefits equate to roughly $1.25 million in national income gains per job lost, the U.S. should consider policy alternatives to offset job loss rather than simply abandon an FTA with China.

On December 10th, in a speech to the Export Council, President Obama invited China to follow TPP Rules, though not as a formal member, stating:

“And we hope that … China actually joins us, in not necessarily formally being a member of TPP, but in adopting some of the best practices that ensure fairness in operations.”

President Obama further stated, “They [China] will take whatever they can get. They will exploit every advantage that they have until they meet some resistance.”

Echoing a statement by Chinese President Xi Jinping at the APEC meeting, however, Obama also stated China has a “great interest in the relationship with the United States and [recognizes] the interdependence that has evolved between our two economies.” Everything the U.S. is trying to do in TPP has a “direct application” to China, which could be a reference to establishing new disciplines on state-owned enterprises and intellectual property protection.

Overall, Obama said the “key” to the U.S. trade relationship with China is to “continue to simply press them on those areas where trade is imbalanced, whether it’s on their currency practices, whether it’s on IP protection, whether it’s on their state-owned enterprises.” He said the bilateral investment treaty in which China has “shown an interest in negotiating could end up being a significant piece of business.”

The president also touted the breakthrough in the negotiations to expand the Information Technology Agreement (ITA) that the U.S. reached with China during the president’s trip to Asia last month. “And I think that it’s indicative of [China’s] interest in trying to get this right.”

CHINA AUSTRALIA FTA

On November 17th, Australia and China signed a free trade agreement to allow greater Australian agricultural exports and greater investment in China and increased Chinese exports to Australia. According to the Australian Prime Minister, the Agreement is predicted to add billions to the Australian economy create jobs and drive higher living standards.

INDIA US BILATERAL DEAL MOVES TRADE FACILITATION AGREEMENT FORWARD

 On November 27, 2014, the Trade Facilitation Agreement, which had been blocked by India, was back on track after a vote at the WTO. The TFA simplifies and harmonizes customs procedures and mandates customs reforms such as introducing transparency, risk based management by customs administrations, a “single window” for all government agencies dealing with imported merchandise, automation, electronic payment of duties and the separation of the payment of duties from the release of cargo, among other things. These improvements are intended to facilitate trade across borders, thereby reducing the costs for international traders and ultimately consumers.

On December 11th, the WTO reported that Hong Kong was the first country to ratify the Trade Facilitation Agreement, which will streamline global customs rules.  Irene Young , Hong Kong’s representative stated that “A multilateral TFA, which can significantly enhance trade flows, is very important to Hong Kong, China, and I believe it is no less so for other economies. Ultimately, the agreement will benefit all of us, but that is only possible when it actually comes into effect.”

In response, WTO Director-General Roberto Azevedo stated:

“I hope that other members will gain inspiration from this and will soon be able to follow Hong Kong, China’s lead.”

The TFA needs to be ratified by two-thirds of the WTO’s members to come into effect.

TRADE ADJUSTMENT ASSITANCE PROGRAM—REAUTHORIZATION

As stated in my last blog posts, I have made the case for the Trade Adjustment Assistance Program for Firms/Companies, which is presently funded at $16 million nationwide.

At the end of 2014, because of the efforts of Senator Sherrod Brown and Congressmen Adam Smith, Derek Kilmer and Sander Levin in the House, the TAA for Firms/Companies program was reauthorized in the Cromnibus Bill, which went through the Senate and the House and was signed into law by President Obama. Although Senator Brown advocated that the assistance for US companies in the TAA for Firms program be increased to $50 million, in fact, the program was cut from 16 million to $12.5M. As Senator Brown stated in the attached press release, BROWN PUSHES FOR REAUTHORIZATION.

“Fund TAA at the previous level of $575 million and Trade Adjustment Assistance for Firms at $50 million to provide financial assistance and expertise to import-affected manufacturers to help them become more competitive.”

In talking to one TAAC in the Midwest, the problem is that the money is so low that there are companies lined up to get assistance, but the money is committed as soon as it is authorized, so many companies will not get this vital assistance.

To summarize, on December 8th, a number of Democratic Congressmen, including ranking Ways and Means member, Sander Levin, and Congressmen Adam Smith and Derek Kilmer from Washington wrote in the attached letter, HOUSE CONGRESSIONAL LETTER, to Speaker Boehner and Minority Leader Nancy Pelosi asking that that the program be reauthorized:

“December 8, 2014

Dear Speaker Boehner and Leader Pelosi, . . .

We write to call your attention to the fast-approaching expiration of the Trade Adjustment Assistance (TAA) program and urge you to bring legislation to the floor that would enable this effective program to continue assisting both firms and workers beyond December 31, 2014.

Since its inception, TAA has helped both workers and businesses cope with job losses resulting from increased global competition. According to the U.S. Department of Labor (DOL), approximately two million workers nationwide have relied on TAA for Workers (T AAW) since 1975 to make ends meet and receive training necessary to find a new job in high-skill, growing industries. In addition, according to the Economic Development Agency’s 4th annual report, 882 trade-impacted firms have received assistance through TAA for Firms (TAAF) in 2013. These firms employed over 76,000 workers at the time of their entry into TAAF and at least one firm was located in 48 of the 50 states throughout the country.

TAAW not only helps hard-working Americans whose jobs have been adversely impacted by trade, but it allows those workers to reenter the workforce and contribute to our economy with better skills and training. The program provides training assistance and income support enabling dislocated workers to retrain for employment in competitive industries. The success of this program is proven by the fact that 75 percent of TAA workers secured a job 6 months after leaving the program and 90 percent of those workers remained employed a year thereafter.

TAAF is another critical component of this program that effectively assists U.S. companies impacted by imports remain competitive. TAAF offers a matching fund for outside expertise to help companies adjust their business models allowing them to regain their competitive advantage in the marketplace. The program makes it possible for companies to avoid layoffs, or, where layoffs have occurred, to rehire workers as the companies regain their competitive footholds. In the most recent report by the Department of Commerce on T AAF, it is reported that all the U.S. companies that were beneficiaries in 2011 were still in business in 2013.

TAA is a critical part of our nation’s competitiveness strategy in the face of a rapidly evolving world economy and its reauthorization enjoys bipartisan support. Congressional leadership and action to reauthorize TAA is needed to stop the termination of an effective program that helps American workers and firms compete, innovate, strengthen, and diversify America’s economy. We must do all we can to save jobs by helping firms readjust and workers regain their edge and competitiveness in the global marketplace.”

TAA for firms will become even more important with the passage of any free trade agreement, including the TPP.

ANTIDUMPING, COUNTERVAILING DUTY AND OTHER TRADE CASES

CIRCUMVENTION OF ALUMINUM EXTRUSIONS ORDER??

On December 11, 2014, in the attached letter to Assistant Secretary Paul Piquado at the Commerce Department, MCCONELL ALUMINUM EXTRUSIONS, Senate Majority leader, Mitch McConnell pressed Commerce on circumvention of the US antidumping order on Aluminum Extrusions from China stating:

“I write on behalf of my constituents at Kentucky’s Cardinal Aluminum. Cardinal, an aluminum extruder, employs over 500 people in Louisville and plays a vital economic role in the Commonwealth. My constituents have informed me that unfair trade practices from China are once again threatening Kentucky jobs.

In 2012. I introduced legislation with my Senate colleagues that-once enacted into law- allowed the Department of Commerce (DOC) to impose countervailing duties on certain imports from communist and nonmarket countries. This law and DOC’s subsequent implementation of countervailing duties and anti-dumping measures on a number of U.S. imports subsidized by foreign governments helped protect over a thousand Kentucky jobs.

Unfortunately, my constituents have informed me that they believe certain exporters are engaged in aluminum alloy dumping activities in the U.S. market. My constituents have conveyed to me that these and related injurious trade practices abroad have already led to a reduction in more than 75 jobs and threaten additional Kentucky jobs if no action is taken.

I am told that your department plans to review the scope of countervailing duties and anti-dumping duties that are intended to prevent these abuses of international trade practices. In addition to their concerns surrounding potential dumping activities, my constituents have expressed to me their concerns regarding the metrics involved in this review process.

As your department proceeds with its review and other related investigations to curb unfair trade practices, I ask that you give full and fair consideration to the concerns of my constituents. I have enclosed their correspondence for your convenience.

Thank you for your time and attention to this matter. I look forward to receiving your response.

Sincerely,

Mitch McConnell”

United States Senator

JANUARY ANTIDUMPING ADMINISTRATIVE. REVIEWS

On January 2, 2015, Commerce published the attached Federal Register notice, JANUARY REVIEWS, regarding antidumping and countervailing duty cases for which reviews can be requested in the month of January. The specific antidumping cases against China are: Crepe Paper Products,   Ferrovanadium, Folding Gift Boxes, Potassium Permanganate, and Wooden Bedroom Furniture.

The specific countervailing duty cases are Oil Country Tubular Goods and Circular Welded Carbon Quality Steel Line Pipe.

For those US import companies that imported Potassium Permanganate, Wooden Bedroom Furniture, OCTG and the other products listed above from China during the antidumping period January 1, 2014-December 31, 2014 or during the countervailing duty review period of 2014 or if this is the First Review Investigation, for imports imported after the Commerce Department preliminary determinations in the initial investigation, the end of this month is a very important deadline. Requests have to be filed at the Commerce Department by the Chinese suppliers, the US importers and US industry by the end of this month to participate in the administrative review.

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

In my experience, many US importers do not realize the significance of the administrative review investigations. They think the antidumping and countervailing duty case is over because the initial investigation is over. Many importers are blindsided because their Chinese supplier did not respond in the administrative review, and the US importers find themselves liable for millions of dollars in retroactive liability. Recently in the Shrimp from China antidumping case, for example, almost 100 Chinese exporters were denied a separate antidumping rate.

RUSSIA—US SANCTIONS AS A RESULT OF UKRAINE CRISIS

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

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

The sanctions will eventually increase more with the Congressional passage of the Ukraine Freedom Support Act, which will be attached to my blog, which President Obama signed into law on December 19, 2014.

Although the law provides for additional sanctions if warranted, at the time of the signing, the White House stated:

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

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

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

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

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

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

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

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

The facilitation of any such transactions.

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

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

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

On December 22, 2014, Russian oil giant Rosneft NK OAO on Monday dropped its bid to buy Morgan Stanley’s oil-trading and storage business, citing an “objective impossibility” of gaining regulatory clearance amid tense international relations in the wake of ongoing sanctions against Moscow.

IP/PATENT AND 337 CASES

337 CASES

There have been developments at the US International Trade Commission (“ITC”) in 337 cases and patent area.

In the attached petition, PRINT CARTRIDGES 337 PETITION, on December 23, 2014, Seiko Epson filed a new 337 patent case against Certain Ink Cartridges and Components Thereof against the following Chinese companies and US importers:

Zhuhai Nano Digital Technology Co., Ltd.; Nano Business & Technology, Inc.; Zhuhai National Resources & Jingjie Imaging Products Co., Ltd.; Huebon Co., Ltd.; Chancen Co.; Ltd.; Zhuhai Rich Imaging Technology Co., Ltd.; Shanghai Orink Infotech International Co., Ltd.; Orink Infotech International Co.; Ltd., Zinyaw LLC; Yotat Group Co., Ltd.; Yotat (Zhuhai) Technology Co., Ltd.; Ourway Image C0., Ltd.; Kingway Image Co., Ltd.; Zhuhai Chinamate Technology, Co., Ltd.; InkPro2day, LLC; Dongguan 0cBestjet Printer Consumables Co., Ltd.; OcBestjet Printer Consumables (HK) Co., Ltd.; Aomya Printer Consumables (Zhuhai) Co., Ltd.; and Zhuhai Richeng Development Co., Ltd.

PATENT AND IP CASES IN GENERAL

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

On November 25, 2014, the attached new patent infringement complaint was filed by Invue Security Products, Inc. v. Hangzhou Langhong Technology Co., Ltd. and Langhong Technology USA Inc.  HANGZHOU PATENT

On December 5, 2014, the attached new patent infringement complaint was filed by Ultratech, Inc. dba Ultratech Cambridge Nanotech versus Esnure Nanotech (Beijing) Inc., Ensure Nanotech LLC d/b/a Ensure Scientific Group LLC and Dongjun Wang. CHINA NANOTECH PATENT CASE

On December 5, 2014, the attached new patent infringement complaint was filed Harvatech Corp. vs. Cree Inc., Cree Hong Kong Ltd., and CREE Shanghai Opto Development Ltd. CREE HONG KONG

On December 10, 2014, the attached new patent complaint was filed by Optical Tech IP LLC v. Huawei Technologies USA Inc. HUAWEI

On December 16, 2014, the attached new patent infringement complaint was filed by Hitachi Maxwell Ltd. vs. Top Victory Electronics (Taiwan Co. Ltd.), TPV International USA Inc., Envision Peripherals Inc., Top Victory Electronics (Fujian) Co., Ltd., TPV Electronics (Fujian) Co. Ltd., TPV Technology Ltd., and TPV Display Technology (Xiamen) Co., Ltd. XIAMEN FUJIAN PATENT CASE TVS

On December 18, 2014, the attached new patent complaints were filed Dynamic Hosting Company LLC versus Huawei Technologies USA Inc. and ZTE (USA) Inc. HUAWEI DYNAMIC HOSTING ZTE DYNAMIC HOSTING

On December 31, 2014, the attached new patent complaint was filed by Adaptive Data LLC versus Huawei Technologies USA Inc., Huawei Device USA Inc. and Huawei Technologies Co., Ltd. HUAWEI3

PRODUCTS LIABILITY

On December 10, 2014, the attached products liability complaint was filed by Diana Alvarez Gonzales et al v. Shandong Linglong Tyre Co., Ltd., Horizon Tire, Inc., Horizon Tire Corp., Bridgestone Americas Tire Operations LLC., and GCR Tire. SHANDONG TYRE COMPANY

On December 26, 2014, Tower Insurance Company filed the attached products liability complaint against Jarden Corp., Sunbeam Products, Inc. and Foshan Shunde Toppin Electrical Technology Co., Ltd. CHINESE HEATER PRODUCTS LIABILITY COMPLAINT

US CHINA TRADE WAR–DEVELOPMENTS IN TRADE , TAA, 337/IP, ANTITRUST AND SECURITIES

US Capitol South Side Fountain Night Stars Washington DC TRADE IS A TWO WAY STREET”

“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”

PRESIDENT RONALD REAGAN, JUNE 28, 1986

US CHINA TRADE WAR NEWSLETTER NOVEMBER 25, 2014

DECEMBER 12, 2014 UPDATE–SOLAR NEGOTIATIONS AND NEW SOLAR ANTIDUMPING AND COUNTERVAILING DUTY CASE IN CANADA

Dear Friends,

On January 21st, I will be speaking at the Brooklyn Law School in New York City on US China Trade Disputes. The invitation to the speech is set forth below.

I look forward to seeing any of my friends at the speech.

Best regards,

Bill Perry

Wednesday, January 21, 2015 * Subotnick Center, 250 Joraelmon Street * Brooklyn Law School

2 FREE CLE credits

Two judges from the US Court of International Trade * partners from two leading law firms handling China trade disputes * professors from four law schools * former chairman of Federal Trade Commission * former congressman focused on US-China trade * former general counsel of MasterCard

REGISTRATION PROGRAM RECEPTION
5:30 PM 6-8 PM 8 PM onward

WELCOME Professor Nicholas W. Allard

Joseph Crea Dean and Professor of Law, Brooklyn Law School

INTRODUCTION

Professor Robin Effron

Co-Director, Dennis J. Block Center for the Study of International Business Law, Brooklyn Law School

FIRST PANEL: PURE TRADE DISPUTES

MODERATOR

Geoffrey Sant, Esq.

Adjunct Professor, Fordham Law School

Special Counsel, Dorsey & Whitney LLP

PANELISTS

The Honorable Donald Pogue

Senior Judge, US Court of International Trade

Professor Bill Kovacic

Global Competition Professor, George Washington Law School

Former Chairman of Federal Trade Commission

  

Bill Perry, Esq.

Partner, Dorsey & Whitney LLP

Formerly in Office of General Counsel, US International Trade Commission; Office of Chief Counsel and Office of Antidumping Investigation, U.S. Department of Commerce

Don Bonker

Executive Director, APCO Worldwide, Inc.

Former US Congressman (D-WA); former Chairman of Subcommittee on International Economic Policy and Trade

SECOND PANEL: DISPUTES BETWEEN TRADE PARTNERS

MODERATOR

  1. Augustine Lo, Esq.

Dosey & Whitney LLP

PANELISTS

Chris Cloutier, Esq.

Partner, King & Spalding LLP

Former Acting Deputy Director of Trade Remedy Compliance, US Department of Commerce (at US Embassy in Beijing, China)

Professor Thomas Lee

Leitner Family Professor of International Law, Fordham Law School

Noah Hanfft, Esq.

President; CEO of International Institute for Conflict Prevention and Resolution

Former General Counsel of MasterCard

Professor Zhao Yun

Director of the Center for Chinese Law, University of Hong Kong

CLOSING REMARKS The Honorable Claire Kelly

Judge, US Court of International Trade

Trustee, Brooklyn Law School

RECEPTION

8 PM onward

THIS EVENT IS FREE, BUT RSVPS ARE REQUIRED

RSVP to events@cblalaw.org

About the Program The United States and China are major trading partners. Trade issues between the two nations take center stage as leaders negotiate new trade treaties and struggle to resolve disputes under existing legal frameworks. Brooklyn Law School and the Chinese Business Lawyers Association present an evening of dialogue among leading practitioners and professors who will examine current issues in trade disputes between the U.S. and China.

Sponsored by the Dennis J. Block Center for International Business Law, Chinese Business Law Association (CBLA), ABA Section of International Law, and the Trade Secrets Institute(TSI).

WE EXPECT ALL SEATS TO BE RSVP’D.  TO ATTEND, PLEASE RSVP AS SOON AS POSSIBLE TO events@cblalaw.org OR TO www.brooklaw.edu/tradedisputes

For directions, please visit: www.brooklaw.edu/directions

Thank you!

Geoffrey Sant, Director

Chinese Business Lawyers Association

This course provides two (2) CLE credits in the State of New York. Partial credit is not available. The credits are transitional and non-transitional and the category is Professional Practice.

US CHINA SOLAR NEGOTIATIONS

Several companies have asked me about a possible US-China settlement in the Solar Cells/Solar Products cases.  Today, December 12th, USTR Michael Froman acknowledged that Washington and Beijing have held talks about the Solar cases for “some time”.  During a conference call with Reporters, Froman stated that a stable environment for trade in solar products and polysilicon would have three components.  The first is to ensure that trade laws are being enforced. The second and third components are to enable the further deployment of clean technology and address issues like climate change, and “to maintain world class industries in both our countries to manufacture these important products.”

But knowledgeable people stated that talks have slowed in recent weeks, following a period of intense engagement prior to President Obama’s state visit to China in November, which ended without an agreement.  A major reason for this failure is because SolarWorld Americas, the petitioner in the U.S. trade remedy cases, stated that it could not accept the parameters that Chinese producers were willing to offer, and the U.S. government was unwilling to push the company to give ground.  In contrast to Europe, Canada, many other countries and even China, the United States does not have a public interest test in its US antidumping and countervailing duty laws and, therefore, the US government has less power to push a settlement.

The deadline for Commerce to accept a potential agreement to suspend the ongoing antidumping (AD) or countervailing duty (CVD) cases against Chinese solar panels has long passed. Thus settling the dispute will require a broader agreement, such as in 2006 U.S.-Canada Softwood Lumber Agreement, under which Canada agreed to impose export taxes and/or quotas on its exports of softwood lumber to the United States, in return for the U.S. government stopping the collection of trade remedy duties on those products.

SolarWorld has stated that it could accept a package that would do away with the various trade cases if four key conditions were met. The first three are that the agreement be enforceable by Commerce, set a floor price on imports of Chinese solar cells, and include a quantitative restriction on the volume of imports. The fourth condition is that the floor price on imports of Chinese solar cells be indexed to the market price for polysilicon.  Knowledgeable sources, however, have said that the floor price is key sticking point.

Commerce Secretary Penny Prtizker also stated that she did not expect the final Solar Products determination to have any impact on the JCCT negotiations, which will soon take place in Chicago.

The bottom line is that the Solar Products case will go to Antidumping and Countervailing Duty order and any deal would have to be extremely unique, such as the US Canadian Lumber Agreement.  The chance of such an agreement is probably small.

CANADA SOLAR CASE

An importer has contacted me about a new Solar Module and Panel Antidumping and Countervailing Duty Petition filed in Canada. On December 5, 2014, the Canadian government initiated the investigation. See the attached petition and announcement of the Canadian government.  CANADIAN SOLAR COMPLAINT CANADIAN SOLAR ANNOUNCEMENT

The Solar Trade War with China is now beginning to follow a similar pattern with other trade wars against Chinese products. An antidumping/countervailing duty case is filed in the US or the EU followed by many, many cases around the World.

In the early 1990s, a US antidumping case was brought against Garlic from China. I represented a number of US importers in the case and tried to represent the Chinese exporters/producers. In a very unusual situation, an official at the Chinese Chamber of Commerce refused to let any Chinese company respond to the US antidumping case and since the Chamber controlled export licenses, the official had the power to stop participation.

As a result, the Commerce Department levied antidumping duties of 376% against Chinese garlic, and that antidumping order is in place today, almost 20 years after the petition was filed.  But that was not the worst part of the case, the Garlic case spread to numerous other countries, including EU, India, Japan, Korea, Brazil, Mexico and other countries. Pretty soon 20 to 30 countries had trade orders against Chinese garlic blocking all exports of Chinese garlic, and Chinese garlic prices dropped like a rock. Garlic was very cheap in Beijing.

Chinese solar cells and panels appear to be on the same trade path as Europe, the US, India and now Canada have brought antidumping and countervailing duty cases against China. Many countries may soon block Chinese solar cells and panels out of their market.

If anyone has any questons about this case or the ongoing US Solar Cells and Solar Products case, please feel free to contact me.

If anyone wants specific help on the Canadian case, please let me know and I will put them in touch with Canadian trade counsel.

NOVEMBER 25, 2014 POST

There have been major developments in the trade politics, trade, trade agreements, trade adjustment assistance, 337/IP, US/Chinese antitrust, and securities areas.

This month the blog post has grown substantially because there have been so many developments in the trade and political area, especially with regards to China.

TRADE POLITICS AND TRADE AGREEMENTS WITH CHINA

THE REPUBLICAN WAVE ELECTION CHANGES THE TRADE POLITICAL LANDSCAPE IN WASHINGTON DC

No matter whether you are a Republican or a Democrat, in looking at trade issues, including the trade laws and the relationship between the US and China, one must deal with political reality in Washington DC. Elections have consequences, and the November 4th Republican wave election will have consequences for years to come.

Not only did the Republicans take the Senate, but no one expected the Republicans to take 8 seats with potentially another coming from Louisiana so Republicans at the end of January 2015 will control the Senate 53 or 54 to 47 or 46.

In the House of Representatives with 5 races still undecided Republicans gained 12 sets. They now hold 245 seats to 187. One can see how the political map has changed in the House by looking at http://www.politico.com/2014-election/results/map/house/. In the House, the United States has turned into a red Republican sea.

As it stands now, this is the largest Republican majority since 1946. If 3 of the 5 outstanding House seats go Republican, it will be the largest Republican majority since the 1930s under Herbert Hoover, before Franklin Delano Roosevelt was President. To say that this election was historic is an understatement.

As Dana Milbank, a Washington Post columnist, who is not viewed as a Republican/conservative partisan, states in his November 14th Washington Post column:

“There are five 2014 House races still to be decided before we can answer the question of historical interest:

Was this the worst election for House Democrats since 1928? Or was it merely their worst since 1946?

Either way, the results do not reflect well on the House Democratic leader, Nancy Pelosi – a conclusion that seems to have escaped Nancy Pelosi.

“I do not believe what happened the other night is a wave”, the former speaker informed Politico. . . . She preferred to describe what happened in the House elections as an “ebb tide.”

If Democrats lose three of the five undecided races, they will have ebbed all the way back to the day Herbert Hoover won the Presidency. To fail to see that as a wave, Pelosi must be far out to sea.”

The 2014 election for Democrats was not a wave. It was a tsunami, and now the political reality has changed dramatically in Washington DC. The most dramatic impact will be in the trade area because that is the one area that Senate and House Republicans can work on together with President Obama.

As indicated below, under the Trade Agreements discussion, President Obama’s problem in the Trade area is not with the Republicans, but with the Democrats. Although many Democrats want to call themselves progressive, because of substantial Union support, a number of powerful Democrats do not want progress on trade. They are opposed to Free Trade Agreements that lower barriers to imports. In fact, several Democrats want to raise barriers to imports.

Most Republicans are not opposed to the Free Trade Agreements because they firmly believe that Free Markets will result in more business and a substantial increase in economic activity for US companies and more jobs for US workers.

On November 5th the day after the election, many former US government officials were predicting that Trade Promotion Authority (“TPA”), which will lead to the Free Trade Agreements, such as the Trans Pacific Partnership (“TPP”), would be one of the first issues taken up by the new Republican majority.   TPA is the centerpiece of the administration’s trade policy, as it will set forth negotiating priorities for the next several years.

While a bipartisan TPA bill emerged earlier this year, Senate Majority Leader Harry Reid, D-Nev refused to introduce the bill on the floor. The change of the majority to the trade-friendly Republicans removes that problem.

According to former United State Trade Representative (“USTR”) Clayton Yeutter, with the Obama administration pushing for a final 12-nation Trans-Pacific Partnership as soon as possible, securing TPA will be the number one objective and will likely rise to the top of the Republican agenda. As former USTR Yeutter stated:

“The challenge will be to get fast-track done as early as possible and I believe that all the folks in congressional leadership positions understand that fully. I would look for it to be one of the very first issues on the Congressional agenda next year.”

Present USTR Michael Froman also expressed optimism, stating:

“I think ultimately this is an area where there’s a lot of bipartisan support for trade. It’s one of the areas that cuts across party lines, one area that we think we can make progress in, and we look forward to working with Congress after the election on Trade Promotion Authority and on our trade agenda more generally, in a way that has broad bipartisan support.”

In addition, the new Chairman of the Senate Finance Committee will be Republican Senator Orrin Hatch of Utah and he has a close working relationship with the present Chairman, Democratic Sen. Ron Wyden of Oregon. As indicated in past newsletters, Senator Hatch has been very open about the need to pass TPA through the Congress and he will be very active on this issue.

The chances of passing a fast-track bill in the upcoming lame-duck session of Congress are slim because the objective according to recent reports is to end the session on December 11th.  In the new Congress, however, TPA will be very important because Republicans have publicly warned the Administration not to conclude the TPP talks before TPA is concluded. As indicated below, without TPA no final deal will be concluded because countries like Japan and Canada will not put their best proposals on the table.  Japanese Prime Minister Shinzo Abe, for example, in particular, will be reluctant to strike a deal if there is a chance it could be altered legislatively at a later date.

As former USTR Yeutter stated:

“It will be exceedingly difficult to wrap up TPP without TPA. Abe and Japan don’t want to have to make tough political decisions twice.”

As a further example, in the attached e-mail, WAYS AND MEANS TRADE A PLUS on November 13, 2014, the House Ways and Means Committee released an article by Bryan Riley from The Hill stating:

Free Trade is a Winner in Recent Elections

By Bryan Riley, The Hill contributor

Riley is the Heritage Foundation’s Jay Van Andel Senior Policy Analyst in Trade Policy.

In Georgia, Iowa, Massachusetts and North Carolina, the midterm elections proved that candidates shouldn’t be afraid to talk about the benefits of trade. They also demonstrated that candidates tempted to employ protectionist scare tactics in their campaigns should think twice.

In Iowa, Republican Senate candidate Joni Ernst’s campaign argued: “Congressman [Bruce] Braley’s Anti-Free Trade Votes are bad for Iowa Farmers.”

According to Politico: Iowa Republicans, in one of the tightest Senate races in the country, are trying to capitalize on Democratic Rep. Bruce Braley’s record of voting against trade agreements to help hand their candidate, Joni Ernst, the victory. Braley, whose state is heavily dependent on farm exports, voted against free trade pacts with South Korea, Colombia and Panama in 2011, even after President Barack Obama’s administration re-negotiated several provisions to round up more Democratic support. “The South Korean trade deal was huge,” Agriculture Secretary Bill Northey told POLITICO in an interview. “Everyone knew it was a clear, clear win for agriculture and it would have been a terrible not to have it. For him to vote against that I just think is a major red flag.”

Ernst defeated Braley, 52.2 percent to 43.7 percent.

In North Carolina’s Senate race, Democratic incumbent Kay Hagan said:

“Unfair trade agreements have contributed to the loss of more than 286,000 North Carolina manufacturing jobs in the last decade — the fourth-largest decline in the nation. It is time we start protecting jobs here at home.” Her campaign spokesman added: “Kay opposed trade agreements that ship North Carolina jobs overseas because she will always put North Carolina jobs first.”

Her Republican opponent, Thom Tillis, disagreed: “As agriculture exports increase, Thom believes we must promote policies that make trade with other nations free and efficient in order to stimulate our economy and allow North Carolina farmers and ranchers to expand their businesses.”

Tillis defeated Hagan, 49.0 percent to 47.3 percent.

In Massachusetts, the Democratic Governors Association released an ad attacking Republican gubernatorial candidate Charlie Baker: “Baker won the Outsourcing Excellence Award at the ‘Oscars of Outsourcing’ for his work destroying jobs here at home.” Baker replied that outsourcing some jobs to India allowed Massachusetts insurer Harvard Pilgrim to save thousands of jobs at home. Former Massachusetts Attorney General Thomas F. Reilly (D) called the outsourcing attacks “exactly the kind of nonsense that drives people away from the political process.”

Baker defeated Democrat Martha Coakley, 48.5 percent to 46.6 percent.

In Georgia, Democratic senatorial hopeful Michelle Nunn attempted to smear her Republican opponent David Perdue for outsourcing jobs to other countries: “David Perdue, he’s not for you,” her ad proclaimed. When a reporter asked Perdue to defend his use of outsourcing, he replied: “Defend it? I’m proud of it. … It’s the lack of understanding of the free enterprise system that I’m running against here.”

Perdue beat Nunn, 53.0 percent to 45.1 percent.

After the Massachusetts and Georgia elections, Computerworld reported:

“Offshore outsourcing fails as election issue: A longtime Democratic bludgeon isn’t enough to move needle.” In contrast, candidates who embraced the benefits of trade, like Joni Ernst and Thom Tillis, emerged victorious.

Promoting free trade is good economics, too. A comparison of trade policy around the world, developed by the Heritage Foundation and The Wall Street Journal in the annual Index of Economic Freedom, shows a strong correlation between trade freedom and prosperity.

Washington Post columnist Steven Pearlstein observed that outsourcing saves U.S. businesses and consumers billions of dollars each year:

“Those savings and those extra profits aren’t put under the mattress. Most of it is spent or invested in the United States in ways that are hard to track but have surely created hundreds of thousands of jobs in other companies and other industries. Those who hold those jobs would have no reason to know that they are beneficiaries of the process of outsourcing and globalization. But in a very real sense, they are.”

Most economists agree that criticizing trade is bad policy. Last week’s election results suggest it may be bad politics, too.

But as also indicated below, that is where Trade Adjustment Assistance for Firms/Companies comes into play.  Trade Agreements are a result of Government action that will change the market, not only around the World but also in the United States. With market barriers dropping in a number of different countries, many US competitive companies will see their exports increase.  Experts predict that the TPP, for example, could increase economic activity by $1 trillion.

But this Government action will also change the US market place, and a number of US companies will face a market that has completely changed, a trade tsunami created by Government action.  Because Government action has created the trade tsunami, the Government has an obligation to help companies adapt to the new marketplace conditions.  When I say companies, I mean not just the management, but the workers in the company too.

As explained more below, the Government has a responsibility to help US companies swim in the new competitive marketplace sea that has been created by the Trade Agreements.

FORMER CONGRESSMAN DON BONKER’S CHINA DAILY ARTICLE ON THE IMPACT OF THE ELECTION ON US CHINA RELATIONS

APCO Executive Director Don Bonker, a former Democratic Congressman and an expert on the political issues in US China Trade Relations, published the following November 7th article in the China Daily on the election, which can be found at http://usa.chinadaily.com.cn/us/2014-11/07/content_18881045.htm.  Don puts the November 4th election into a historical perspective:

Election results a mixed blessing for China

By Don Bonker (China Daily USA)

Republicans exceeded early predictions scoring big time in Tuesday’s election, taking full control of the US Senate, increasing their margin in the House of Representatives along with many victories across the country.  For the next two years, the United States will have a truly divided government with the Republicans claiming a new mandate to push an alternative agenda.

While many factors were in play in the 2014 election (Obama’s poor ratings, huge amounts of campaign spending, etc), the fundamentals in recent history clearly favored the Republican Party.  The party of whoever occupies the White House in mid-term elections suffers nominal loses of Senate and House seats and predictably weakens the President’s political standing. As we are reminded by David Schanzer and Jay Sullivan in the New York Times, “This is a bipartisan phenomenon; Democratic presidents have lost an average of 31 House seats and between 4-5 Senate seats in mid-terms; Republican presidents have lost 20 and 3 seats respectively.”

How will the election results affect the US-China relationship?

Neither Republicans nor Democrats have well-defined or predictable policies toward China. In recent years, a small group in Congress has attacked China on a select number of issues but such actions are not part of either Congressional leader’s agenda.  Existing Federal laws, such a CFIUS, provide opportunities for a single Congressman to go after China, often to lend support to a company in his state.

Republicans, known to be pro-trade and pro-business, taking control of the Senate should be a healthy sign in building closer relations with China, especially since governors in their states are leading trade missions to China, seeking Chinese investments and pursuing markets for their exporting companies.

However, individual Republican Senators have sent letters to CFIUS and other Federal agencies opposing China-related investments and transactions. Many senior Republicans in Congress have expressed skepticism over China due to its government’s Communist Party control, reported human rights concerns, US support of Taiwan and Japan, China’s military build-up, economic espionage and geopolitical or national security threats that could put pressure on the Obama Administration to be more assertive with China.

Several well-positioned Republican Congressmen have caused the biggest headaches for China. The issue, or fear, is rooted in cybersecurity threats and economic espionage that has led to Congressional investigations and legislation that greatly restrict China companies, such as Huawei and ZTE, from having access to telecommunication and related technology markets in the US. The two Congressmen who were responsible for these actions are retiring at the end of this year. The question is whether their replacements will continue such policies.

A related concern is the so-called Tea Party’s growing influence that has put Republican Congressional leaders in a difficult position given the Tea Party’s enduring political base and its extreme views on major issues (education and trade). It will likely affect the China relationship in negative ways, particularly on trade (“protect American jobs”) and on cyber and economic espionage issues.

The Democrats have their own agenda which occasionally proves hostile to China. Several occupy leadership positions on committees that preside over government agencies and assert their political clout to press for higher import tariffs and related trade restrictions. This has more to do with politics than economics, particularly in the election season when labor unions pressure, if not intimidate Democratic candidates to “protect American jobs”. Such protectionist policies are now prompting China to take reciprocal actions that may be placing China and America on the path of a trade war.

Despite the encouraging bilateral discussions on the Bilateral Trade Agreement (BIT), there is no guarantee what happens once it arrives on the doorstep of the US Capitol.

Overall, the newly established Congress preparing for 2015 may be more favorable to China given the departures of some if its Capitol Hill critics, but a great deal of anxiety about China will continue – mistrust, economic and security threats and China’s economy surpassing the US’ in the foreseeable future.

In the Senate, the Republicans taking control will create a different political paradigm but with little indication on how it will play out over the next two years. The new political alignment will offer a narrow window for Congressional Republicans to provide stronger leadership and promote their own agenda and could result in more favorable actions (approval of TPP and TTIP trade pacts).

But that is in the short-term. It is unlikely the Republicans maintain the Senate majority in the 2016 elections, but the House of Representatives will comfortably stay in Republican control (given the shape of Congressional districts) for some time into the future. With a Democrat occupying the White House this will likely guarantee continued gridlock in Washington for the next decade.

The 2016 presidential election may be more favorable to Democrats for the same reasons the Republicans scored well this year. Barack Obama is not on the ballot and the Democrats will be far more unified (under Hillary Clinton) than the Republicans (the party may likely be split).

In 2016, the Republicans will have 23 Senate positions on the ballot compared to 10 for Democrats (also likely retirements/resignations). And the voter turn-out will jump back to 53 percent, which greatly favors Democrats in presidential elections. So whether political history will prevail and the Democrats re-take the Senate in 2016 or Republicans will defy the odds and remain in power is the big question going forward.

BILATERAL US CHINA TRADE AGREEMENTS

APEC AND PRESIDENT OBAMA’S TRIP TO BEIJING

Right after the mid-term elections, President Obama made a major trip to Beijing, China for the Asian Pacific Economic Cooperation (“APEC”) meeting.  As indicated below, President Obama’s Administration had set a target date for completing the Trans Pacific Partnership (“TPP”) talks at the APEC meeting. That did not happen, but there were several historic agreements that did come out of the meetings with the US and Chinese Government.

In the attached White House Statement and Fact Sheet, WHITE HSE STATE CHINA VISIT PRESS CONF CHINA US the US and Chinese governments announced that China will now grant 10 year visas to US businessmen and tourists and that there will be enhanced enforcement against counterfeit goods.

During the attached Joint Press Conference, the two Presidents announced a new Information Technology Agreement (ITA) and an agreement on Climate Change. President Obama stated that a strong, cooperative relationship with China is at the heart of the United States’ policy to Asia, and stated that the United States needs the world’s second-largest economy and the most populous nation on Earth as its partner in order to lead in addressing global challenges. As President Obama stated, “[I]t is a fact that when we work together, it’s good for the United States, it’s good for China, and it is good for the world.”

President Xi Jinping of China made several important points in response to questions, but several of the most important are:

“The strategic significance of China-U.S. relations is on the rise. . . . Both President Obama and I believe that when China and the United States work together, we can become an anchor of world stability and a propeller of world peace. China stands ready to work with the United States to firm up our confidence, exercise our wisdom, and take action to strengthen our coordination and cooperation bilaterally, regionally and globally; and to effectively manage our differences on sensitive issues so that we can make new gains in building the new model of major-country relations between China and the United States, which serves the fundamental interests of our two peoples and the people elsewhere in the world.

China and the United States have different historical and cultural traditions, social systems, and faces of development. So it’s natural that we don’t see eye to eye on every issue. But there have always been more common interests between China and the United States than the differences between us. Both sides respect each other’s core interests and major concerns and manage our differences in a constructive fashion, full dialogue and consultation so as to uphold the overall interests of stable growth of China-U.S. relations. . . .

China and the United States are different countries in the world. It’s perfectly normal for there to be different views expressed about us in the international media. And I don’t think it’s worth fussing over these different views. And I don’t see any of the regional free-trade arrangements as targeting against China. China is committed to open regionalism. And we believe the various regional cooperation initiatives and mechanisms should have positive interaction with each other, and that is the case at the moment.”

On Tuesday November 12th, President Obama’s state visit to China ended with the ITA and Climate agreements, joint pledges to continue talks on a bilateral investment treaty (BIT), a new international deal curbing export credits, and continued dialogue regarding their persisting differences over the use of agricultural biotechnology.

President Obama had planned to press China on several other issues, including alleged discriminatory enforcement of its anti-monopoly law (AML), intellectual property (IP) protections, including cyber theft of IP, and China’s slow approval process for biotechnology traits. Only biotechnology, however, was addressed in a White House fact sheet on U.S.-China economic relations, stating:

“The United States and China reached consensus to intensify science-based agricultural innovation for food security. The United States and China commit to strengthen dialogue to enable the increased use of innovative technologies in agriculture.”

At the Press Conference, President Obama stated that he did address IP, “I stressed the importance of protecting intellectual property as well as trade secrets, especially against cyber-threats.”

The other major announcement that came out of Obama’s visit to China was in the area of climate change. On that issue, the two sides reached an agreement on the targets for the cuts they will make to carbon emissions post-2020.

Last week CSPAN, the US Public Affairs station, did a 45 minute interview with Dorsey Partner, Tom Lorenzen on the US China Climate Change agreement. Until joining Dorsey in 2013, Tom was at the Justice Department from 2004 where he was the Assistant Chief in the U.S. Department of Justice’s Environment and Natural Resources Division (ENRD). During that time, he supervised the federal government’s legal defense of all Environmental Protection Agency rules, regulations and other final actions judicially reviewable under the various federal pollution control statutes. See the video at http://www.c-span.org/video/?322770-3/washington-journal-thomas-lorenzen-uschina-carbon-reduction-deal.

On November 12th, the China Daily stated with regards to the Information Technology Agreement (ITA):

“The two countries reached a breakthrough on Tuesday in Beijing to accelerate the expansion of the World Trade Organization’s Information Technology Agreement (ITA), which could help eliminate $1 trillion in tariffs on high-tech product sales globally. The deal would allow the “swift conclusion” on talks to enlarge the ITA at the WTO meeting in Geneva later this year.”

USTR Michael Froman stated in Beijing that it was good news for US companies that are keen to see global tariffs further cut on products such as medical equipment, GPS devices, video game consoles and next generation semiconductors.  The agreement now covers more than $4 trillion in annual trade.

With regards to ITA, the US government announced on November 10th that it had convinced China to eliminate tariffs on tech goods like advanced semiconductors and medical devices. The Chinese government has agreed to U.S. demands to eventually eliminate tariffs on advanced semiconductors known as MCOs, magnetic resonance imaging (MRI) machines, and high-tech testing equipment, but the deal does not include tariff elimination on flat-panel displays.

But the Agreement between China and the United States in the High Tech area will lead to additional negotiations with other countries at the WTO in Geneva, which are scheduled to resume in December. The ITA negotiations broke down in November 2013, after the U.S. and other participants rejected China’s tariff offer as insufficient. Since then, the U.S. and European Union have been trying to persuade China to come back to the table with a better offer.

The agreement between the U.S. and China does not mean the ITA talks are concluded. The two parties will now have to go back to the more than two-dozen other participants – including the European Union, Japan and South Korea – to negotiate a final ITA package. But sources in Geneva are cautiously optimistic that the deal could move forward. The expanded ITA would also eliminate import duties on a range of additional technology products including high-tech medical devices, video cameras, and an array of high-tech ICT testing instruments.  A White House fact sheet stated that the expansion of the ITA pact would eventually eliminate tariffs on roughly $1 trillion in annual global sales of information technology products and boost the annual global GDP by an estimated $190 billion.

On November 14th it was reported that sources in Geneva predicted that the ITA agreement could result in a final deal this December. Although other countries are not expected to block the deal, other countries will push for changes. EU Trade Commissioner Cecilia Malmstrom stated that she welcomed the U.S.-China understanding and that the EU “[intends] to take all necessary steps to finalize the agreement in the coming weeks.”

If the agreement is completed, it will take very little for the U.S. to implement the lowered tariffs. This is because Congress had already authorized further tariff reductions when it passed the Uruguay Round Agreements Act in 1994. This is in contrast to the TPP and the Transatlantic Trade and Investment Partnership (“TTIP”), which are two new agreements that would require congressional authorization before they went into effect.

On November 12th, President Obama and President Xi also announced an agreement to speed up talks on a comprehensive Bilateral Investment Treaty (“BIT”), which is considered to be the foundation for future United States-China trade agreements. At the Press Conference President Xi announced that “We agreed to accelerate the negotiations of the BIT, and we will make efforts to reach agreement on the core issues and the major articles of the treaty text.” The two countries also agreed to “work together to promote innovation in agriculture and food security.”

Trade pundits were reporting that the Republican victory along with the movement in Beijing will give a much-needed boost to the WTO and Obama’s ambitious trade agenda. This has led to a bullish optimistic attitude about the next two years of trade policy.

As indicated below, this victory in Beijing with the close of the APEC meeting was followed on November 13th by a break through with India on the Trade Facilitation Agreement (“TFA”), which the Indian Government had held up on food security grounds.  On November 13th U.S. and Indian trade officials announced they had reached a deal to end the impasse over the WTO trade facilitation Agreement.  Under the deal, India agreed to drop its opposition to the trade facilitation pact in exchange for a commitment from the U.S. to keep in place a so-called peace clause that would shield developing countries’ food security programs from legal challenges until the WTO agrees on a new set of rules governing those programs.

Numerous observers, including new European Union Trade Commissioner Cecilia Malmstrom, hailed the bilateral agreement as a boost for the WTO, which had been criticized as irrelevant as a forum for global trade talks in light of the trade facilitation breakdown. Commissioner Malmstrom stated, “I am particularly pleased today as the breakthrough gives new momentum to the WTO and restores trust among members and the credibility of multilateral trade negotiations.”

TRADE NEGOTIATIONS—TPA, TPP, TTIP/TA AND BALI/DOHA ROUND—NO FINAL DEAL AT APEC MEETING IN BEIJING

TPA FACED HEADWINDS IN CONGRESS BUT THEN THE ELECTION HAPPENED

As mentioned in past newsletters, in the trade world, the most important developments may be the Trans Pacific Partnership (TPP), Trans-Atlantic (TA)/ the Transatlantic Trade and Investment Partnership or TTIP negotiations and the WTO.  The TPP is a free trade agreement being negotiated by officials from the U.S., Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam. These trade negotiations could have a major impact on China trade, as trade issues become a focal point in Congress and many Senators and Congressmen become more and more protectionist.

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

As mentioned in prior newsletters, on January 29, 2014, the day after President Obama pushed the TPA in his State of the Union speech in Congress, Senate Majority leader Harry Reid stated that the TPA bill would not be introduced on the Senate Floor.

But then came the November 4th Republican wave election changing the Trade Politics dramatically in Washington DC.  Elections have consequences and in 2015 Republicans will take the Senate and increase their numbers in House.

To summarize, on January 9, 2014, the Bipartisan Congressional Trade Priorities Act of 2014, which is posted in my February post, was introduced into Congress. The TPA bill gives the Administration, USTR and the President, Trade Promotion Authority or Fast Track Authority so that if and when USTR negotiates a trade deal in the TPP or the Trans-Atlantic negotiations, the Agreement will get an up or down vote in the US Congress with no amendments.

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

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

On April 9, 2014, the new Senate Finance Committee Chairman Senator Ron Wyden announced at a speech to the American Apparel & Footwear Association Conference that he was introducing a new TPA bill, what Senator Wyden calls Smart Track.  But to date no details have been given about exactly what Smart Track will mean, and the Republican victory on November 4th probably means that Smart Track will be washed away by the Republican wave.

On July 17th, all Republican members of the House Ways and Means Committee sent the attahed letter to USTR Froman, HOUSE REPS WAYS MEANS, urging the Administration to build support for Trade Promotion Authority (TPA) and directing the Administration not to complete the Trans-Pacific Partnership (TPP) before TPA is enacted into law.

Now the story continues . . . .

On October 15th in Tokyo, acting Deputy U.S. Trade Representative Wendy Cutler emerged from four days of meetings in Tokyo stating that both sides are working “as hard and creatively as possible” to resolve their bilateral issues. She went on to state:

“We were encouraged by the progress we made this week during our negotiations, but we need to underscore that the issues before us are tough. The issues range from achieving meaningful market access across all agricultural products to establishing a strong and effective dispute settlement mechanism in the auto sector.”

The difficult negotiating areas include five agricultural categories—rice, wheat and barley, beef and pork, dairy products and sugar—as well as autos and auto parts.

After ending the talks with his counterpart, Japanese negotiator Hiroshi Oe added, however, that both sides have “mountains of work to do. We are far from saying, ‘We did it.’ We still have the most difficult areas that have yet to be resolved.”

The U.S.-Japan meetings closed just a day after Mexico’s top trade official, Mexican Economy Minister Ildefonso Guajardo, speaking in Washington, D.C. made clear that the rest of the TPP countries view the US Japan negotiations as a critical step toward progress in the full negotiations,  “It is clear for anybody that knows about trade negotiations that if these two big trading partners, Japan and the U.S. do not come to an agreement, it has domino consequences on the rest of the 12 countries.”

But then came Sidney and then Beijing with no breakthrough in part because of no TPA Agreement.

Meanwhile, on October 16th, according to analysis of the document by Public Citizen, it was reported that a leaked draft of the TPP Intellectual Property Chapter obtained by WikiLeaks could lead to delayed access to pharmaceutical drugs in a dozen countries, including the U.S., and would contradict White House policies aimed at cutting Medicare and Medicaid costs. According to Public Citizen, at issue in the draft is a U.S. proposal to give an advantage to the pharmaceutical industry and “provide long automatic monopolies for biotech drugs or biologics” contradicting the pledge included in past White House budgets to shorten the same monopoly periods to reduce cost burdens on Medicare and Medicaid.

Public Citizen said it remains concerned that these provisions would give large brand-name drug firms a way to “impose rules” on Pacific Rim economies that “will raise prices on medicine purchases for consumers and governments. If the TPP is ratified with this U.S.-proposed provision included, Congress would be unable to reduce monopoly periods without risking significant penalties and investor-state arbitration.”

In Sidney the leaked IP draft resulted in a number of civil society organizations and Australian lawmakers voicing opposition to the deal citing many trouble spots.  A group of Australian politicians along with public health and copyright experts convened at Australia’s Parliament house lawn to condemn possible TPP trade-offs as talks resumed in Canberra.  Australian green party Sen. Peter Whish-Wilson stated that “the leaked documents indicate that the government is on course to hand over protections for human rights, public health, the environment and Internet freedom.”

On October 24th, in a letter six Congressmen, including Sens. Ron Wyden, D-Ore., Orrin Hatch, R-Utah, Jay Rockefeller, D-W.V., and John Thune, R-S.D., the ranking members of the Senate Finance and Commerce committees, stated that USTR Michael Froman should oppose any proposals in the TPP negotiations that would needlessly limit internet traffic, including the cross-border transfer, storage or processing of data, and protect the unfettered transfer of commercial data and digital trade.  According to the letter, eight countries, including TPP members Mexico and Vietnam, have or are considering policies to limit their Internet traffic.

As a result of all these concerns, Rep. Sander Levin, D-Mich, ranking Democratic Congressman on the House Ways and Means Committee, traveled to Sydney, Australia, to closely observe the status of the TPP talks. Levin took the unusual step of arranging meetings with trade ministers from the TPP nations during their Oct. 25-27 session in an effort to gather more information about TPP’s more contentious unsettled areas. Levin, who is from Detroit, has long been an advocate of the U.S. automotive industry, which has been blocked out of the Japanese market for decades. More broadly, Levin also called for the final TPP to bind its member countries to upholding the highest possible environmental, labor and human rights protections.

On October 27th in Sidney, Australia trade ministers for countries negotiating the TPP hailed “significant progress” in the talks during their three-day meeting in Australia, but stopped short of announcing a breakthrough.  Opening the meeting, USTR Michael Froman stressed that the outstanding TPP issues are among the most contentious in the agreement, but that negotiators have taken efforts to ensure that they are resolved as smoothly as possible.  President Obama had targeted the APEC meeting in Beijing on November 10th as a “deadline” to conclude the negotiations, but critical to the conclusion of the 12-nation TPP talks are the bilateral deliberations between the U.S. and Japan, which also continued in Australia.

After returning from Sidney, Congressman Levin expressed his concern about the current status of the TPP talks in Australia calling for more transparency in negotiations and an increased focus on its details.  Levin stated that “it is “vital to have an open door for a broad understanding and involvement on how they should be resolved, with increased transparency.”

Levin said that although a compromise he helped negotiate, referred to as the “May 10 agreement,” had significantly improved the TPP in the realms of workers’ rights, environmental protections and access to medicines, it is “vital that TPP build on them, not weaken them.” Levin noted the opportunities and challenges inherent with the diversity of economies represented within the TPP membership, pointing out Malaysia’s and Vietnam’s “very different” economies from the U.S.

On October 27th, following the negotiations in Sidney, the Ministers and Heads of Delegation for the TPP countries issued the attached statement, TPP ACTUAL JOINT STATEMENT AUSTRALIA, which provides in part:

“We consider that the shape of an ambitious, comprehensive, high standard and balanced deal is crystallizing. We will continue to focus our efforts, and those of our negotiating teams, to consult widely at home and work intensely with each other to resolve outstanding issues in order to provide significant economic and strategic benefits for each of us. We now pass the baton back to Chief Negotiators to carry out instructions we have given.”

On October 30, 2014, despite a push from numerous business groups, it was reported that it would be very difficult to pass TPA in the lame duck session, which is the time between the election on November 4th and the inauguration of the new Congress in January 2015.

On October 31st, USTR Mike Froman made clear that the 12 nations negotiating the TPP deal did not expect a final deal at the Asia-Pacific Economic Cooperation (“APEC”) conference in Beijing. As Froman stated:

“No, we do not expect to have a final agreement on TPP at APEC. All the TPP leaders will be present, so it will be a good opportunity to have conversations with each other about TPP, about whatever outstanding issues are left … and to give more political impetus to getting it done.”

Froman said that negotiators are still at work on the deal:

“We are making very good progress in closing out issues, narrowing the differences on remaining issues but we still have a ways to go and we are going to continue to work. We think the substance of the negotiation ought to drive the timetable. We’re not going to live by an arbitrary deadline but we are all focused on getting it done as soon as possible.”

On November 6th, after the election, business Leaders announced that they were increasing pressure to take up the TPA during the lame duck, but Mike Dolan, Teamsters’ legislative representative, said that fast track “won’t go anywhere during Lame Duck.” A broad coalition of labor, consumer groups sent over half a million petition signatures to Congress opposing TPA for the pending TPP.

In response to a question about the chance for a vote in the remaining weeks of the current Congress, Senate Finance Committee ranking Republican Orrin Hatch (R-Utah) stated, “Whether that happens during the lame duck is ultimately up to Democratic leadership.” Senator Hatch also stated that he believes there would be strong support to pass trade promotion authority in the “lame duck” session of Congress if Senate Democratic leaders decide to allow a vote. Senator Hatch, the new Chairman of the Senate Finance Committee, introduced the TPA bill along with former Senate Finance Chairman Max Baucus, now the U.S. ambassador to China, and House Ways and Means Chairman Dave Camp, R-Mich.

On November 10th in Beijing President Barack Obama and the leaders of the other 11 countries negotiating the TPP stated that a final agreement is now “coming into focus,” but declined to set a firm deadline for the completion of the talks. The 12 leaders, meeting on the sidelines of the APEC summit in Beijing, issued a joint statement commending the progress made by their negotiating teams over the past several weeks and kept up the pressure to finalize the TPP in the near future. The leaders stated:

“With the end coming into focus, we have instructed our ministers and negotiators to make concluding this agreement a top priority so that our businesses, workers, farmers and consumers can start to reap the real and substantial benefits of the TPP agreement as soon as possible.”

On November 11th, John Ivison, a Canadian reporter, issued an opinion piece in the National Post of Canada stating that any “‘significant progress’ made on the Trans-Pacific Partnership trade deal is pure bureaucratic BS.” See http://fullcomment.nationalpost.com/2014/11/11/john-ivison-any-significant-progress-made-on-the-trans-pacific-partnership-trade-deal-is-pure-bureaucratic-bs/.

As Ivison stated:

Trade sources suggest two major problems with negotiations that run contrary to the sunny optimism of the official statement.

One is that the Americans have approached the talks on a bilateral basis, preferring to hammer out deals country by country. “This is a typical U.S. approach, trying to run it like a hub-and-spoke negotiation,” said Mr. Clark.

Without knowing the outcome of talks between the two largest TPP participants — the U.S. and Japan — no one else has tabled a serious offer.

“Things are no closer than they were six months ago. No country will make an offer setting the starting point for ‘level of ambition’ without knowing the ambition levels of the U.S. and Japan.  You only give further from your first offer,” said one person with knowledge of the negotiations.

The second impediment to real progress is lack of Trade Promotion Authority — fast-track — on the part of President Barack Obama. No one wants to strike a deal that then becomes a bargaining chip in the internecine politics between the president and Congress.

There have been some suggestions that the newly empowered Republicans in the Senate might offer fast-track authority, in return for the president giving the Keystone XL pipeline the green light. But for now, President Obama cannot sign off on a deal using his executive authority.

Canada’s intransigence on supply management of poultry and dairy is likely to become a problem at some point.

In Beijing, TPP trade ministers highlighted the four areas where issues remain unresolved in the proposed deal: intellectual property, state-owned enterprises, the environment and investment. The ministers called intellectual property “one of the most complex and challenging areas of the agreement.”

On November 13th, over 200 business groups sent a letter to leaders of both the House and Senate, urging them to pass a new fast-track trade bill during the lame-duck legislative session this year. Specifically, the Trade Benefits America Coalition sent the letter urging passage of bipartisan Trade Promotion Authority (TPA) legislation to House Speaker John Boehner, R-Ohio, Senate Majority Leader Harry Reid, D-Nev., House Majority Leader Nancy Pelosi, D-Calif., and Senate Minority Leader Mitch McConnell, R-Ky., on behalf of more than 200 U.S. associations and companies including the American Farm Bureau, National Foreign Trade Council and National Association of Manufacturers.  The letter concluded, “With 95 percent of potential customers outside the United States and more than one in five American jobs supported by trade, we need to seize on opportunities — such as ongoing and future U.S. trade agreements — to expand U.S. commerce with other countries.”

On November 15th President Obama vowed to continue pushing toward a swift TPP deal, which he said has the potential to yield a “historic” trade deal. At the G20 meeting Obama stated:

“It is our chance to put in place new, high standards for trade in the 21st century that uphold our values. It’s about a future where instead of being dependent on a single market, countries integrate their economies so they’re innovating and growing together. That’s what TPP does. That’s why it would be a historic achievement.”

On November 18th, Prime Minister Abe in Japan called a snap election on December 14th to seek a mandate for his economic decisions, but this too will complicate the TPP negotiations.

On November 18th Deputy USTR Robert Holleyman stated that the U.S. is seeking provisions in the TPP requiring civil and criminal responses to the theft of trade secrets. As Holleyman stated:

“Many in this room have certainly paid attention to the damage that’s being caused by the theft of valuable trade secrets in foreign marketplaces. And in the TPP agreement, we’re seeking both civil and criminal responses to this problem, including to the issue around the growing problem of cyber-theft of trade secrets.”

TTP FOR CHINA??

But what about China? Could it eventually join the TPP?

On October 15th, the Peterson Institute for International Economic (”IIE”) released a study touting the benefits of a theoretical free trade agreement between China and the United States, including increased income and export gains, while also acknowledging that such an agreement could lead to 500,000 to 1 million lost U.S. jobs over a 10-year span.

There are clear signs that China is interested in joining TPP. Citing an unnamed high-ranking U.S. official, Bergsten of IIE said “not a week goes by” that the administration does not receive an inquiry from China about TPP. But China has not officially sought entry into the initiative because it believes it would be denied at this stage in the negotiations. U.S. officials have made clear they want to close the deal with the current 12 participants.

The study predicts that a comprehensive agreement between China and the U.S. would create income gains for the U.S. of up to $130 billion while creating $330 billion in income gains for China. Under the agreement, the U.S. is projected to achieve export gains of $373 billion, and China — $472 billion. Similarly, U.S. exports to China would increase 108 percent and Chinese exports to the U.S. would increase 40 percent, according to the study.

But the study also finds that if a bilateral agreement is reached, the U.S. would suffer “adjustment costs” in the magnitude of 50,000 to 100,000 U.S. workers losing their jobs each year over a 10-year period. In other words, the deal could cost the U.S. economy up to a million job losses over a decade.

That is where Trade Adjustment Assistance for Companies comes into play. The Peterson study contends that because the economic benefits equate to roughly $1.25 million in national income gains per job lost, the U.S. should consider policy alternatives to offset job loss rather than simply abandon an FTA with China. Such alternatives could include a bolstered trade adjustment assistance program, lengthy phase-ins of the liberalization of sensitive sectors, and larger wage-loss insurance and training and relocation programs.

Over the past year, China has undergone a radical shift in its stance on TPP because Beijing realizes it stands to suffer financial losses if it is not a member of the agreement, according to the authors of the study. The study claims that if TPP is concluded, China would lose $82 billion in gross domestic product and $108 billion in export revenue due to diverted trade flows.

CHINA AUSTRALIA FTA

To add more fuel to the fire, on November 17th, Australia and China signed a free trade agreement to allow greater Australian agricultural exports and greater investment in China and increased Chinese exports to Australia. According to the Australian Prime Minister, the Agreement is predicted to add billions to the Australian economy create jobs and drive higher living standards.

Prime Minister Tony Abbott stated:

“It greatly enhances our competitive position in key areas such as agriculture, resources and energy, manufacturing exports, services and investment. Australian households and businesses will also reap the benefits of cheaper goods and components from China, such as vehicles, household goods, electronics and clothing, placing downward pressure on the cost of living and the cost of doing business.”

When the deal takes effect, more than 85 percent of Australian goods exports will be tariff free and that number will climb to 95 percent. Those goods were previously saddled with tariffs of up to 40 percent. US companies that attempt to export products to China can face very high tariffs, some in the 40 to 60 plus percent range.

China, meanwhile, will face less scrutiny in its investments in Australia per the deal. The Chinese government told Australia it estimates it will spend $1.3 trillion over the next decade in investments in Australia.

TTIP FTA WITH EUROPE

Meanwhile the TTIP FTA with Europe moves forward on November 16th with President Obama and prominent EU leaders ordering their respective negotiating teams to continue negotiations. A Joint Statement provides:

“We remain committed, as we were when we launched these negotiations in June 2013, to build upon the strong foundation of our six decades of economic partnership to promote stronger, sustainable and balanced growth, to support the creation of more jobs on both sides of the Atlantic and to increase our international competitiveness.”

But former USTR Clayton Yeutter predicted that despite the problems, the negotiations would likely finish up after Obama leaves office in early 2017. As Yeutter stated:

“There were a lot of miscalculations as to how long TTIP was going to take. This is not a negotiation that’s going to conclude anytime soon. In my view there is no practical chance of doing it during the Obama presidency.”

On November 18th the new EU Trade Commissioner Cecilia Malmstrom responded to criticisms that the TTIP will only serve the interests of large multinational Corporations by stating that the Agreement must benefit consumers:

“Trade agreements can lower prices, widen choice and create high-quality jobs. TTIP must do exactly that.”

Malmstrom also called for the negotiations to be more transparent, stating that the agreement needed input from “the whole range of civil society groups: trade unions, business associations, environmental organizations and, of course, consumers.”

INDIA BILATERAL DEAL WITH THE US MOVES TRADE FACILITATION AGREEMENT NEGOTIATED IN BALI FORWARD

Many World Trade Organization (“WTO”) and US officials have warned that India’s decision to block the implementation of the Trade Facilitation Agreement (“TFA”) negotiated in Bali has had a “freezing effect” on the WTO’s work in a number of different areas. But after substantial pressure from the APEC countries, India and the US announced a breakthrough in the negotiations over the Agreement.

On July 31st, the WTO announced that the Trade Facilitation Agreement negotiated in Bali would not be implemented on schedule because of the substantial opposition from developing nations led by India as a result of food security initiatives.

On September 30th, in his first meeting with President Obama, although indicating that a solution should come soon, Indian Prime Minister Modi reaffirmed his government’s position linking the WTO Trade Facilitation Agreement with support for the deal to act on food security issues.

On October 16, WTO Director-General Roberto Azevêdo reported to the Trade Negotiations Committee:

As a result we missed the deadline for the adoption of the protocol of amendment on the Trade Facilitation Agreement, which was the first deadline that Ministers set us in Bali. I said at the time that I feared there would be serious consequences. . . . as I feared, this situation has had a major impact on several areas of our negotiations. It appears to me that there is now a growing distrust which is having a paralyzing effect on our work across the board. . . .

it is my feeling that a continuation of the current paralysis would serve only to degrade the institution — particularly the negotiating function. . . . This could be the most serious situation that this organization has ever faced. I have warned of potentially dangerous situations before, and urged Members to take the necessary steps to avoid them. I am not warning you today about a potentially dangerous situation — I am saying that we are in it right now.

At the Trade Negotiations Committee meeting, Deputy USTR and U.S. ambassador to the WTO Michael Punke slammed India and the other opponents of the TFA protocol for perpetuating an “unnecessary and counterproductive crisis.” Those members’ inability to concede their position on food security has “significantly undermined” the entire Bali package and may doom any prospects for a “fully multilateral agreement.”

Although some of the trade pundits were suggesting that India be dropped off the back of the bus and the TFA move forward without India, others indicated that the real role of the TFA was symbolic—a way to get the WTO negotiating function going again.

On October 31st, Director-General Roberto Azevêdo reported to heads of delegations that there had been progress, and on November 10th, Azevedo asked APEC members, who were meeting in Beijing, to help push the TFA Agreement through. On that same day trade ministers for the 21 APEC countries, including China, vowed to throw their full weight behind resolving the current stalemate in the World Trade Organization surrounding the implementation of a trade facilitation agreement and the expansion of a tariff-cutting pact. In the attached statement released in Beijing, APEC ANNOUNCEMENT BALI TPP, the APEC Ministers stated:

2014 APEC Ministerial Meeting

  1. We, the Asia-Pacific Economic Cooperation (APEC) Ministers, met on 7-8 November 2014, in Beijing, China. The meeting was co-chaired by H.E. Wang Yi, Minister of Foreign Affairs of the People’s Republic of China, and H.E. Gao Hucheng, Minister of Commerce of the People’s Republic of China. . . .
  1. We welcome the participation in the meeting of the Director General of the WTO . . . .
  1. We reaffirm our confidence in the value of the multilateral trading system and stand firmly to strengthen the rules-based, transparent, non-discriminatory, open and inclusive multilateral trading system as embodied in the WTO.
  1. We highly commend the Bali Package achieved at the 9th Ministerial Conference (MC9) in Bali, Indonesia. We express our grave concern regarding the impasse in the implementation of the Trade Facilitation Agreement (TFA) which has resulted in stalemate and uncertainties over other Bali decisions. These developments have affected the credibility of the WTO negotiating function. In finding solutions to the implementation of the Bali decisions, APEC will exert creative leadership and energy together with all WTO members in unlocking this impasse, putting all Bali decisions back on track, and proceeding with the formulation of Post-Bali Work Program, as a key stepping stone to concluding the Doha Round.
  1. Bearing in mind that open markets are vital for economic growth, job creation and sustainable development, we reaffirm our commitment and recommend that our Leaders extend a standstill until the end of 2018, and roll back protectionist and trade-distorting measures. We remain committed to exercising maximum restraint in implementing measures that may be consistent with WTO provisions but have a significant protectionist effect and to promptly rectifying such measures, where implemented. In this context, we support the work of the WTO and other international organizations in monitoring protectionism.

Emphasis added.

Significantly, India is not a member of APEC, and the ministers’ statement made clear that they would exhaust all resources in order to convince New Delhi to change its stance and enable the WTO to carry on with its more substantive work.

On November 12th, in Beijing President Obama expressed optimism saying that he was “actually confident that there’s an opportunity for us to resolve them fairly soon.”

On November 13th, the US and India announced that they had reached an agreement to move the TFA forward. Under the bilateral deal, India agreed to drop its opposition to the TFA to streamline international customs procedures while the U.S. agreed to leave a so-called peace clause shielding India’s food stockpiling measures from legal challenges in place until the WTO crafts a permanent solution on that issue.

On November 14th Azevedo predicted that the implementation of a deal streamlining global customs procedures would earn quick approval from the WTO members within two weeks following the Indian government’s move to drop its opposition to the pact.

On November 16, the G-20 leaders in Australia welcomed “the breakthrough” between the U.S. and India that would allow for the “full and prompt” implementation of the TFA. The leaders also pledged to implement other agreements in Bali and swiftly define “a WTO work program on the remaining issues of the Doha Development Agenda to get negotiations back on track,” which it said would “be important to restore trust and confidence in the multilateral trading system.”

A 21st TRADE ADJUSTMENT ASSITANCE PROGRAM—A MODEST PROPOSAL—RESPONSE TO OPPOSING ARGUMENTS

As stated in my last newsletter and in my October blog post, I have made the case for the Trade Adjustment Assistance Program for Firms/Companies, which is presently funded at $16 million nationwide. With only a relatively small part of that low budget, the Northwest Trade Adjustment Assistance Center (“NWTAAC”) has been able to save 80 percent of the companies that participated in the program since 1984.

In my last newsletter and my blog, I also argued that President Reagan himself indirectly approved of the TAA for Firms/Companies (“TAAF”) program because it does not interfere with the market in any ways and yet has been able to save a number of US companies. In fact, the TAA programs could be funded by the over $1 billion collected every year by the US government in antidumping and countervailing duties.

But there are two programs. The first program is the $500 million to $1 billion program of TAA for workers and then there is the $16 million TAAF program for companies. Congress should consider reworking the two programs to accomplish the objective of saving the jobs and the companies that are hurt by trade liberalization. There needs to be more coordination between the two programs.

One way to adjust the programs is put the TAAF for Companies program first and give it more funding so it can help larger companies, such as Steel and Tire Companies, where more jobs are located. TAAF for Companies could be used to create a program where the best of technologies and advisory services could be brought to bear to help US companies challenged by globalization and trade liberalization. The Worker program then comes afterwards, after the jobs have been lost. Data that is needed for the Worker program can be supplied as part of the Company program.

But several questions have been raised that need to be answered.

  1. Isn’t TAAF for Companies crony capitalism?

Many opponents might argue that TAAF for Companies is simply crony capitalism. Under the TAAF program, however, very little money actually goes to the companies. Most of the money goes to business consultants that can help the company change its business model or change its marketing strategy.

In fact, as it stands now, the Program only provides $75,000 in matching funds, which means the Company itself must put in the matching $75,000. Although relatively small, the Federal money has been critical in helping US companies develop a strategy to deal with the new import competition in the market place and adjust to market conditions.

The TAAF program also cannot provide hard assets to the company, just business strategy advice and help on soft projects, such as help designing a marketing website, developing software for the company in its production process or designing a dam for an Idaho sheep farm. This is not corporate welfare because the company has to put much of its own assets in both money and labor into the assistance.

WTO also does not consider this a subsidy. No money or assets go to the company. The amount is low and does not harm international trade.

Although the TAAF program could be strengthened so that it could provide TAA for larger companies, such as Steel and Tire companies, the matching funds provision and the limitation on providing only soft projects and consulting is important so that the program cannot be targeted as simply another government subsidy.

TAAF for companies is not another Solyndra program.

  1. Isn’t TAA for Firms/Companies picking winners and losers in the market?

Any company that has been injured by imports/is being impacted by trade competition can apply to enter the program. At its core, the TAAF for companies program provides advice to the company on how to swim in the newly competitive marketplace from business experts, who know how to turn a company around.

In addition, the initial write up of the application is done by experts at TAA Centers around the country, who work with the companies at the local level on a one to one basis to develop a plan to fit the specific needs of the company. Because the program is implemented at the local level by neutral officials, there is no picking winners and losers. Although the final adjustment plan must be approved at Commerce, by that time the politics has been bled out of the situation and the question is can the company meet the criteria in the statute.

  1. Why shouldn’t TAA money go to workers and not companies?

TAA for firms/companies is not TAA for management. The company includes both the management and the workers. If you talk to workers, which have been hit by trade competition, they would rather have their job then just take assistance from the Federal Government.

Although Unions have pushed unfair trade cases, in fact, many of these unfair trade cases do not work. They do not protect the companies, and more importantly the workers from import competition. It is impossible to bring antidumping and countervailing duty cases against every country in the World.

I have met workers at a company that has been saved by the TAA for Firms/Companies program, which helped the company adjust its business plan to compete in the new trade impacted market. The worker in question had been at the factory for over 30 years and was very grateful that the program had saved his job.

In fact, the split between workers and management may be one of the problems that should be addressed by TAA. Often with the small companies, however, the employees and management have been together for years and look upon each other as one in the same. They are all in the company boat together.

Also TAA for Firms/Companies is not an entitlement, a net flow out of the US government. The TAAF program keeps the company alive and keeps the taxes from the company and the company’s management and workers flowing to the US and State Treasuries, which is money going into the US and State treasuries. That is real bank for the buck.

  1. Why can’t Private Investment/Equity funds pick up the slack and thus there is no need for TAA for Firms/Companies?

Private investment companies are often targeting short term profits so if the company cannot achieve short term profits, the company is closed and the assets are sold. Mitt Romney’s company, Bain Capital LLC, invested substantial money into GS Industries, the parent company of Georgetown Steel.  Although Bain made money, it did so by cutting more than 1,750 jobs, closing a division that had been around for 100 years and eventually Georgetown Steel sank into bankruptcy.

TAAF for companies is working long term to save the company and the jobs that go with that company. This is the only long term assistance program in the US government. So the short term profitability of the company is not the issue. The issue is can the company be turned around so that it can become profitable and very profitable in the long term.

Private Equity Firms and TAAF have very different objectives.

  1. What makes TAA for Firms/Companies different from other Economic Assistance to US companies?

TAAF for companies is a trade program, not just a Government assistance program. Trade problems for companies often happen because Government action has changed the US market, be it a free trade agreement, such as the TPP, or a change in government regulations, which has exposed the US companies to import competition.

Since the Government has created the problem in the short term by its own action, it has a responsibility to help US companies and workers that have been impacted by this Government action.

Under the Constitution Congress controls trade, not the President. TAAF is a program that was started to allow Congress and the Administration to negotiate international trade deals, which help the US economy as a whole, but have the effect of creating winners and losers in the US market.

To help building public support for these Free Trade Agreements, TAA has been provided to companies and workers to help them adjust to increased import competition. Although over time, the TAAF for companies program has declined in funding, with the new trade agreements, such as the TPP and the TTIP, the program needs to be built up again to help companies that have been hurt by changes in the US trade laws, which encourage US exports, but also imports from other countries. As stated at the top of this newsletter, trade is a two way street.

In addition, the TAAF program is the only long term assistance program in the US, and it monitors the companies to make sure they implement the plans that they have agreed to.

  1. The TAAF Program Is Too Small To Be Effective

The $16 million TAAF program may be small, but it is very effective.  Since 1984, NWTAAC has been able to save 80% of the companies in the program.

The 2013 NWTAAC report from Commerce points out that all the companies that entered the program since 2011 are still alive today.

In fact, TAAF should be expanded so it can help larger companies, such as Steel and Tire companies, deal with increased competition in the US market as trade agreements reduce barriers to imports.

  1. Why help old line US industries and companies that technology and changing trade patterns have left behind and should die a natural death?

This is the basic creative destructionism argument from famous Harvard economist, Joseph Schumpeter, and it is true if companies do not change with changing market conditions, they will die a natural death.

But TAAF for companies gives companies the opportunity to change and adapt to the changing market conditions. Many TAAF employees that have been working at the Centers for years firmly believe that any company that enters the program can be helped. It may be a new marketing strategy or a change in company equipment, or improvements in their business strategy.  The staff has seen too many success stories to not believe in the power of the program.

In Seattle we had a company making ceramic flowerpots that was being injured by imports of flower pots from Mexico. The company came into the program and as a result started producing ceramic molds for titanium parts for Boeing.  Changing the business plan is one of the best strategies to keep the company alive and the jobs that go with that company.

TAA REAUTHORIZATION NEEDED BY DECEMBER 31ST

On November 20th, in the attached announcements CONGRESS E-MAIL Reauthorize Trade Adjustment Assistance Before It Expires on December 31 REAUTHORIZATION SEAL, House and Senate Democrats urged Congress to reauthorize TAA before it expires December 31st. Although the emphasis is on the TAA for Workers program, the Reauthorization would also apply to TAA for firms/companies. As it stands now, as of January 1, 2015, TAA will no longer be able to provide trade adjustment assistance to new companies that want to enter the program. If TAA for Companies is not reauthorized by June 1, 2015, all the TAAC centers around the country will close their doors and the program will cease to exist.

As indicated below, funding TAA is the essence of compassionate conservatism.

CONGRESSIONAL E-MAIL NOTICES

Reauthorize Trade Adjustment Assistance Before It Expires on December 31, 2014

From: The Honorable Adam Smith Sent By: Mina.Garcia@mail.house.gov Bill: H.R. 4163 Date: 11/20/2014

November 20, 2014

Reauthorize Trade Adjustment Assistance Before It Expires on December 31, 2014

Dear Colleague,

We write to draw to your attention to five stories that illustrate the importance of reauthorizing the Trade Adjustment Assistance (TAA) program. TAA provides financial support and re-employment training for workers whose jobs are lost due to trade. It also provides assistance to U.S. companies that have been injured by imports so they can continue to remain competitive and not resort to mass lay-offs or closures.  Funding for service workers expired at the end of 2013. Funding for the remainder of the program – which supports manufacturing workers, farmers, ranchers, fishermen, and firms – will expire on December 31 unless we act to renew it.

In 2013, 100,000 workers qualified for TAA and the results prove the program’s success.  More than 75% of workers who completed the program found jobs within six months, and of those, 90% were still employed a year later.  More than 75% of workers who completed training in 2013 received a degree or industry-recognized credential.   Here are five TAA success stories:

  •  A 74 year-old Seattle die forging firm experienced trade impact and entered the Trade Adjustment Assistance for Firms program (TAAF) in the mid 2000’s. With the assistance of the Northwest Trade Adjustment Assistance Center (NWTAAC), the firm implemented a strategy of adopting certain innovations to develop capabilities in advance of competitors worldwide. NWTAAC assisted the firm in three ways that relied heavily on outside expertise: implementation of a data management system; commercialization of a new alloy; and a revision of the Firm’s website. Two years after completing TAAF, the Firm has increased employment by 11% and sales by 141%.
  •  Rodney Cox worked for 13 years on machinery, most recently at a local hospital in rural Oregon.  He was laid off in September 2010 and could not find another job.  With only a GED, he realized he would need more education to make the wage he had earned as a millwright.  Working with a TAA case manager, he opted to attend a community college that offered an Associate’s degree in Biomedics.  His TAA benefits allowed him to live, temporarily, near the training facility 177 miles away from his home (and family).  Rodney earned his degree and accepted a position as a Bio-Medical Equipment Technician.  He is earning a wage higher than what he earned when he was a millwright.  Of TAA, Rodney said, “Things couldn’t have worked out better for me.  My case managers helped me every step of the way.  I was hired two days after I moved back home with my family.”
  •  Kim Franklin is a single mother with two children.  She worked for a manufacturing company.  When she was laid off, she could not find a similar job.  She realized she needed to consider a new career and to get new skills. Through TAA, she completed Medical Assistance training.  She is now employed as a medical assistant at a health clinic in her community.
  •  Juan Bustamante worked as a machine operator in California for over 11 years making aluminum rims for cars.  When the nearby car facility moved operations out of the country, Juan – and 300 of his colleagues – lost their jobs.  Through TAA, Juan was able to obtain remedial education in English, Math, and Speech at the Los Angeles Valley College Job Training Center.  After completing the coursework, Juan qualified for the Transportation Metro Bus Operator Bridge Training Program.  After completing that program, he received a position with LA Metro and has full benefits.
  •  Judith Fischer worked for a publishing firm in New York and lost her job.  Through TAA, she explored career options and decided to pursue occupational therapy, concentrating on the psychological effects of diminished quality of life issues.  She earned an Associate’s Degree and received a job as a Community Rehabilitation Instructor and Case Manager, working with the developmentally disabled.  Judith plans to pursue a Master of Science in Social Work.  Of her new career, Judith said that it is “rewarding in every way, especially being able to connect with these children and I feel all the love they have to give.”

These examples demonstrate that TAA helps workers find new jobs and firms stay in business when they face new competition from abroad. We urge you to extend the program before it expires on December 31.

/s/                                                                             /s/ SANDER LEVIN                                                         ADAM  SMITH Member of Congress                                                   Member of Congress

/s/                                                                             /s/ CHARLES B. RANGEL                                               DEREK KILMER Member of Congress                                                   Member of Congress

/s/ RON KIND Member of Congress

 United States Congress

SECOND CONGRESSIONAL NOTICE

FOR IMMEDIATE RELEASE

Thursday, November 20, 2014

Contact: Rep. Smith- Ben Halle, (202) 570-2771

            Rep. Levin- Caroline Behringer, (202) 226-1007

            Rep. Kilmer- Jason Phelps  (202)-225-3459

            Rep. Rangel- Hannah Kim, (202)-225-4365

House Dems Urge Congress to Reauthorize TAA Before it Expires December 31st

Washington, D.C.- Today, Senator Sherrod Brown introduced a Senate companion bill to the Trade Adjustment Assistance (TAA) Act of 2014, introduced by Representatives Adam Smith (D-WA), Sander Levin (D-MI), Derek Kilmer (D-WA), and Charles B. Rangel (D-MI). These bills would renew TAA, which is set to expire on December 31, 2014. Reps. Smith, Levin, Rangel, and Kilmer released the following statement calling for the immediate passage of the TAA:

“It is critical that Congress pass Trade Adjustment Assistance legislation before it expires at the end of the year. Both the House and Senate TAA bills provide critical work training, income support, and health care to help dislocated American workers transition and learn new skills for new careers in competitive industries.  This vital assistance helps American workers and businesses adapt and compete in a rapidly evolving world economy.”

Background: Congress created the TAA program in 1962 in response to the loss of jobs among hard-working Americans as a result of increasing global competition, as well as to promote American competitiveness.  TAA benefits have several components: training assistance, income support while in training, and job search and relocation assistance.  The program assists workers dislocated by the elimination of tariffs and other barriers to trade.  Additional programs assist farmers, fishermen, and firms with the development and implementation of business plans to enable them to regain a competitive foothold. Click here for the full text of the Trade Adjustment Assistance (TAA) Act of 2014.

TAA by the numbers:

  • 2,192,910:  The number of workers served by TAA since it was created in 1974
  • 104,158:  The number of workers eligible to apply for TAA in 2013
  • 50:  The number of states with workers eligible for TAA benefits in 2013
  • 75%: The percentage of TAA workers who got a job within six months of finishing the program
  • 90%: The percentage of those TAA workers who remained employed at the end of the year

ANTIDUMPING, COUNTERVAILING DUTY AND OTHER TRADE CASES

THE MAGNESIUM CASE — WHY MARKET ECONOMY IN ANTIDUMPING CASES AGAINST CHINA IS SO IMPORTANT FOR US PRODUCERS

As stated in numerous past newsletters, market economy for China is important for US end user production companies. The importance of market economy for the United States is illustrated by the Magnesium from China antidumping case. Recently a large Western company came to me because they were thinking of exporting Chinese magnesium to the United States to help the US magnesium die casting industry. But after discussions, at least in the short term, the company gave up because there is no longer a viable magnesium die casting industry in the United States. The Antidumping Order on Magnesium from China has killed the downstream industry.

In antidumping cases Commerce does not use actual prices and costs in China to determine whether a company is dumping. Dumping is defined as selling at prices in the United States below prices in the home market or below the fully allocated cost of production.

As mentioned before, however, in contrast to Japan, Korea, India, Iran and almost every other country in the World, China is not considered a market economy country in antidumping cases. Commerce, therefore, refuses to look at actual prices and costs in China to determine whether a Chinese company is dumping. Instead Commerce constructs a cost for the Chinese company by taking consumption factors from the Chinese producer for all inputs used to produce the product in question, including raw materials, energy, and labor, and then goes to a Third Surrogate Country to get Surrogate Values often from Import Statistics in the surrogate country to value those consumption factors.

In the past Commerce looked for surrogate values in only one country, India, but recently Commerce looks at numerous countries, including Indonesia, Thailand, Philippines, Bulgaria, Columbia, and Ukraine to name a few and those countries and import values can change from annual review investigation to annual review investigation.

Thus, it is impossible for the Chinese company to know whether it is dumping because it cannot know which surrogate value that Commerce will pick to value the consumption factors and thus the US importer cannot know whether the Chinese company is dumping.

In the Magnesium from China antidumping case, one of the key inputs is electricity. Electricity from hydro power in China, where many of the Chinese companies are located, can be as low as 3 cents a kilowatt hour. The average electricity cost in the US is 6 cents a kilowatt hour. What price did Commerce use as a surrogate value for electricity in the recent Magnesium review investigation? 7 cents a kilowatt hour.

This is very important because as of February 2014, there were 121 Antidumping and Countervailing Duty orders. 75 of those orders are for raw material products, such as metals, chemicals and steel, which go into downstream US production.

The Commerce Department has broad discretion to determine surrogate countries and values and their choices can change from annual review investigation to annual review investigation, exposing US importers to millions of dollars in retroactive liability based on a process, which is inherently arbitrary, because Commerce does not look at actual prices and costs in China.

Not only is there a problem with retroactive liability for US importers, US end user companies are often blocked from using the competitive Chinese raw material input, which, in turn, exposes the US downstream producers, such as foundries, automobile and chemical producers, to competition from Chinese companies and foreign companies that do have access to the lower cost raw materials. In other words, the US antidumping and countervailing duty laws, rob Peter to pay Paul.

One example of the devastating impact of the US Antidumping Law is the impact of the US Magnesium from China antidumping case on the US Magnesium Die Casters. As the North American Die Casting Association stated in June 2010:

North American Die Casting Association

June 7, 2010 ·

NADCA Supports Magnesium Die Casters with a Filing to Help Lift Tariffs

May 27, 2010 by NADCA in NADCA News Wheeling, IL

NADCA recently filed a response to the International Trade Commission (ITC) in hopes to help lift ITC’s tariffs on imported magnesium alloy. Since many die casters have been harmed by the excessive prices being charged by the sole magnesium alloy producer in the U.S., NADCA has filed this response in regards to the Sunset Review of this particular ITC tariff. . . .

NADCA is concerned about magnesium die casters having access to alloy magnesium in the U.S. at globally competitive prices. The antidumping duty orders effectively bar Russian and Chinese alloy magnesium from the U.S. market. Prices for alloy magnesium are higher in the U.S. than elsewhere due to the antidumping duty orders currently in place in the U.S. but not in other major consumer markets.

The lack of effective competition in the U.S. market ― there is only one significant U.S. producer of alloy magnesium, US Magnesium LLC ― has harmed die casters since the imposition of the antidumping duty orders in 2005. NADCA estimates that as many as 1,675 direct jobs and 8,000 supporting jobs have been lost in the die casting industry due to the imposition of these orders.

US Magnesium has not made significant efforts to maintain or increase its sales of alloy magnesium in the U.S. since the imposition of the antidumping duty orders. For example, US Magnesium has not joined in efforts initiated by magnesium end-users to develop new uses of magnesium.

Thus an antidumping order to protect more than 450 production jobs in Utah has resulted in the loss of 9,657 jobs in the downstream market.

What did the ITC do in the face of this argument?

Left the antidumping order against magnesium from China in place for another five years.

Now in 2014, what has been the effect of the ITC’s decision to leave the Antidumping Order on Chinese Magnesium in place—more closed companies and more lost jobs. In 2004-2005 43 US companies sold magnesium die castings in the US market.   According to NADCA, less than 12 US companies now produce magnesium die castings in the United States.

NADCA estimates that 31 US companies have ceased pouring magnesium in the United States because of the antidumping order against magnesium from China.  US companies, such as Lunt in Illinois, simply went out of business because of the Magnesium from China Antidumping order. In 2010, when NADCA did the survey, it estimated a job loss of 1,675 direct jobs. Now the jobs loss has swelled to over 2,000 and closer to 10,000 supporting jobs.

12 companies have survived because they fall into two categories. The major market for magnesium die casting is auto parts. The first set of companies use the magnesium die castings that they produce ( i.e. Honda).

The second set of US companies are those strong in other metals, such as aluminum, and have shifted from producing magnesium die castings to aluminum die castings.

Where did the magnesium jobs and companies go? Many companies and projects simply moved to Mexico or Canada.

Many OEM magnesium auto parts manufacturers moved all their production to Mexico. Five Tier 1 steering wheel manufacturers, for example, have magnesium die casting and wheel assembly plants in Mexico, including TRW, AutoLiv, Takata, Key Safety Systems and Neaton.

The other impact of the antidumping order on Magnesium from China has been to push North American car companies away from magnesium auto parts, necessary for light weight cars, especially powertrain, mainly because of the supply uncertainty.   Lack of access to 80% of the world’s production of magnesium in China and not having globally priced metal inputs is a huge risk to car companies. Magnesium powertrain die casters, such as Spartan, have simply switched to aluminum further reducing magnesium die casting capacity and expertise in the US.

This further diminishes US auto makers acceptance of magnesium auto parts.  This US situation greatly contrasts with Europe where magnesium powertrain components are more than 50% of the magnesium auto applications. EU OEMs are much more advanced at building lighter cars now than their US peers.

Now NADCA has given up because it is “simply too difficult to fight city hall”. My potential client also told me that it was just not worth it to fight the Magnesium antidumping order because the downstream market for the product had simply died in the United States.

The Antidumping law in truth is a jobs destroyer, not a jobs creator.

THE WOODEN BEDROOM FURNITURE ANTIDUMPING CASE—NO HELP TO THE DOMESTIC INDUSTRY BUT 100S OF MILLIONS OF DOLLARS IN RETROATIVE LIABILITY FOR US IMPORTERS AND BANKRUPTCIES

On November 18, 2014, in Mark David, a Division of: Baker, Knapp & Tubbs, Inc. et al v. United States, CIT MAOJI, the Court of International Trade (“CIT”) affirmed a Commerce Department decision of a 216% rate for Maoji, a major Chinese exporter, in the Wooden Bedroom Furniture case creating probably 10s of millions of dollars in retroactive liability for US importers.

In that decision, Judge Tsoucalis stated:

“Maoji does not dispute that they failed to participate fully in the review, and that they therefor can be subjected to an AFA rate. The issue before the court is instead whether Commerce’s application of the 216.01% PRC-wide AFA rate to Maoji was reasonable. Plaintiff argues that the 216.01% PRC-wide AFA rate was neither reliable nor relevant. . . . According to Plaintiff, Commerce applied an “outdated” and “unsupported” margin that did not reflect Maoji’s commercial reality. . . .

Plaintiff does not appear to dispute Commerce’s finding that Maoji failed to rebut the presumption of government control in the Final Results. During the review Maoji notified Commerce that it was not practicable for it to provide a response to the Section D questionnaire or the supplemental Section A questionnaire. . . . Commerce determined that Maoji was a part of the PRC-wide entity. . . . Because Maoji failed to respond to Commerce’s questionnaires regarding its separate rate eligibility during the review, Commerce reasonably concluded that Maoji failed to demonstrate its absence of government control. . . .

Unlike Orient in Lifestyle I, here, Maoji failed to qualify for separate rate status. As a result it received the PRC-wide AFA rate. Because Maoji was part of the PRC-wide entity, Commerce was not required to calculate a separate AFA rate relevant to Maoji’s commercial reality. . . . Commerce was only required to corroborate the rate to the PRC-wide entity. . . . Therefore, Plaintiff’s reliance on Lifestyle I is misplaced. Lifestyle I does not call into question the PRC-wide rate as applied to the PRC-wide entity, rather it only discredits its application to Orient, which successfully established the absence of both de jure and de facto government control.”

Several years ago, an importer asked me to meet with Maoji in Shanghai and talk to them about the Wooden Bedroom Furniture case. From talking to the importer, I knew that Maoji was exporting a lot of furniture from different Chinese manufacturers and asked the Manager from Maoji, what would happen if Commerce picked Maoji as a mandatory respondent in the review investigation and it had to report factors of production/consumption factors from all Maoji’s suppliers? Instead of replying, the Manager got mad and started yelling at me, “Who told you we would have to supply production information for all our suppliers?” End of conversation.

In this case, apparently Maoji could not supply its response to Section D of the questionnaire because it was not practicable. Section D of the questionnaire requires the exporters to report consumption factors for its wooden bedroom furniture suppliers/producers. Too many producers apparently did not want to cooperate with Maoji and supply their production information.

But now all the importers that imported from Maoji are exposed to retroactive liability of 216% on imports. Based on my past experience, this means that importers will owe millions and possibly 10s of millions of dollars on these imports.

A month ago while in Beijing during a meeting with the Chamber of Light Industrial Products, a Chinese Chamber official told me that he regarded the Wooden Bedroom Furniture case as a victory for Chinese companies. My response was that this same case has created retroactive liability of close to, if not more than, $1 billion for US importers. Last year, exports of furniture from Vietnam went by exports of furniture from China. So if the Wooden Bedroom Furniture case was a victory, I would hate to see a loss. In fact, this case has been a disaster.

But this case along with the comments of the Chamber official indicate that Chinese companies simply do not understand the impact of these cases on US importers and in some cases, simply do not care. I have met with company owners in High Point, North Carolina, who have seen their entire $50 million dollar blow up because they had the temerity to import Chinese wooden bedroom furniture from China under an antidumping order.

The irony of the Wooden Bedroom Furniture case is illustrated by the December 2010 ITC determination in the Wooden Bedroom Furniture from China Sunset Review investigation, where ITC Commissioner Pearson stated the antidumping order has not helped the US industry:

this investigation . . . raises some troubling questions. . . . This industry would have faced difficulties during the period of review under any circumstances, given the depth of the recession and its extensive effects on the housing market. But even before the recession began, the industry was not apparently gaining much benefit from the imposition of the order. The domestic industry’s market share continued to decline after the order, as did production, capacity utilization, and employment. In the long run the domestic industry might have been expected to struggle to retain any benefits from this order as importers and retailers sought supply in other, lower-cost markets outside China. But the record here suggests that the domestic industry gained little even before those adjustments began to be made. . . .

I am mindful that the law does not require that an antidumping order or countervailing duty order be shown to benefit the domestic industry in order to reach an affirmative finding in a five-year review. . . .In this particular investigation, additional costs and distortions have been added by the use of the administrative review and settlement process, with little evidence that these distortions have yielded any benefits to the industry overall, the U.S. consumer, or the U.S. taxpayer.

So if the antidumping order does not benefit the US industry, why doesn’t the US industry simply lift the order? Two reasons, first the US industry and the lawyers representing the industry have made money from private settlements with Chinese companies and US importers. Second, although the AD order may not have helped the US industry directly, it has had the effect of eliminating a number of the US industry’s direct competitors, which are US importers forcing them into bankruptcy because they imported furniture under an antidumping order against China.

IMPORT ALLIANCE FOR AMERICA

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

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

Recently, the Import Alliance established its own website. See http://www.importallianceforamerica.com.

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

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

Congressmen have agreed to meet importers to listen to their grievances regarding the US antidumping and countervailing duty laws. In addition to contacting US importers, we are now contacting many Chinese companies to ask them to contact their US import companies to see if they are interested in participating in the Alliance.

At the present time, Commerce takes the position that it will not make China a market economy country in 2016 as required by the WTO Accession Agreement because the 15 years is in a treaty and not in the US antidumping and countervailing duty law. Changes to the US antidumping and countervailing duty law against China can only happen because of a push by US importers and end user companies. In US politics, only squeaky wheels get the grease.

On August 7, 2014, we held an organizational meeting in Beijing, China at the headquarters of China Ocean Shipping Company (“COSCO”) with interested Chambers of Commerce and Chinese companies to explain the project in more detail and to seek help in contacting US importers about the Alliance.

We spoke to about 40 attendees, including attendees from the legal departments of the top 10 chambers of commerce, including Chemicals, Machinery and Electronics, Light Industrial Products, and Food, and the Steel, Wood Products and Hydraulics and Pneumatics & Seals Association.

In addition to describing the Import Alliance and the issues regarding 2016 in the US China Accession Agreement, we also discussed the US China Trade War in general. Introductory videos for the Organizational Meeting from Cal Scott of Polder Inc., the President of the Import Alliance, can be found at the following link https://vimeo.com/103556227 and for former Congressmen Don Bonker and Cliff Stearns of APCO can be found at the following link https://vimeo.com/103556226. The PowerPoint we used to describe the Import Alliance, the specific provisions in the US China WTO Agreement and the Trade War in general is attached FINAL BEIJING IMPORT ALLIANCE POWERPOINT.

TRADE

SOLAR CASES—POSSIBLE SCOPE EXPANSION TO INCLUDE PANELS PRODUCED IN CHINA AND TAIWAN FROM THIRD COUNTRY SOLAR CELLS AND SEPARATE RATES PROBLEM

SOLAR PRODUCTS

On June 3, 2014, Commerce issued its preliminary countervailing duty determination against China in the Solar Products case. The fact sheet and preliminary Federal Register notice have been posted on my blog. The Countervailing Duty Rates range from 18.56% for Trina to 35.21% for Wuxi Suntech and all other Chinese companies getting 26.89%. On July 25th, the Commerce Department announced its preliminary antidumping determination in the Chinese solar products case establishing 47.27% combined rates (20.38% Antidumping, 26.89% Countervailing Duty) wiping out billions of dollars in imports of Chinese solar products into the United States.

Posted on my October blog post are the Commerce Department’s Factsheet, Federal Register notice, Issues and Decision memo from the Antidumping Preliminary Determination along with Commerce instructions to Customs in the Solar Products Antidumping and Countervailing Duty cases, which will help importers understand what products are covered by this case. Also attached to the October blog post is the ITC scheduling notice for its final injury investigation in the Solar Products case. The ITC hearing is scheduled for December 8, 2014.

On August 15th, after an extension, the Chinese government filed a letter at Commerce, which is posted on my blog, expressing an interest in a suspension agreement, but no proposed formal agreement has been filed with the Department. Although some preliminary discussions have been held, no Agreement has been released for comment as required by the Antidumping and Countervailing Duty law.

Meanwhile, the case moves on and expands. In an October 3, 2014 memo, which is posted in my October post, on its own motion Commerce has proposed to expand the scope of the Solar Panels case to cover all panels produced in Taiwan and China from third country solar cells.

On October 16, 2014, on behalf of two importers that import solar panels with third country solar cells in it, we filed a brief to argue that a change this late in the Solar Products investigation expanding the products subject to investigation violates due process because of the lack of notice to US importers and Chinese exporter and producers. The problem with changing the scope this late in the antidumping and countervailing investigation is that Commerce Department’s record is now closed and those Chinese companies that exported solar panels with third country solar cells in them along with the US companies that import those products have no opportunity to prove that the Chinese companies are separate and independent from the Chinese government. The Chinese companies, therefore, will automatically get an antidumping rate of 167%.

Moreover, the entire antidumping and countervailing duty proceedings at Commerce as well as the injury investigation at the US International Trade Commission (“ITC”) are based on the premise that the products covered by this investigation are solely those solar panels that have solar cells wholly or partially produced in the subject countries, Taiwan or China. If Commerce accepts the proposal, that will no longer be the case. The Solar Products cases will cover Chinese and Taiwan solar panels with third country solar cells in them when there is no specific determination at the Commerce Department that those Chinese and Taiwan solar panels with third country solar cells, in fact, were dumped or that the Chinese companies producing those panels received subsidies and no determination at the ITC that the solar panels with third country solar cells in them caused injury to the US industry.

One reason that Commerce may have decided to expand the scope is because the AD and CVD orders will be difficult to administer and enforce. It will be difficult for Customs officials at the border to determine where the components of a solar cell in a particular panel from China or Taiwan originated. But that is a problem with the scope in Solar World’s initial petition that it filed in this case. Substantially changing the game at this stage in the proceedings raises enormous due process questions in this proceeding.

We now await the Commerce Department’s final determination on December 16th.

SOLAR CELLS—THE SEPARATE RATES ISSUE

On November 20, 2014, in the attached Jiangsu Jiansheng Photovoltaic Technology Co., Ltd. v. United States decision, CIT JIANGSU SEPARATE RATES, the Court of International Trade (“CIT”) granted the Commerce Department’s request to take another look at the separate rates issue regarding certain “state-owned” Chinese companies. In doing so the Court stated that even though there was a possibility of government influence that was not enough to deny a Chinese company separate rates. As indicated below, this decision seems to be at odds with the Diamond Sawblades case and the Tetrafluoroethane case.  As the Court stated:

“Specifically, SolarWorld argues that Commerce gave insufficient weight to evidence that Chinese laws permit the government to intervene in Chinese companies’ operations in a variety of ways. But by definition, the laws of an NME country will generally permit the government of such country to intervene in the operations of its companies. Thus to require NME companies to prove complete legal autonomy would introduce an internal inconsistency into the analysis. Instead, as Commerce explained in this case, the agency determines whether the legal possibility exists to permit the company in question to operate as an autonomous market participant, notwithstanding any residual authority for potential governmental intervention, and if so, whether that company should be exempted from the NME system-wide analysis because it in fact managed its production, pricing, and profits as an autonomous market participant. Here, Commerce first determined that, as a matter of de jure possibility, the respondents in question could have acted as sufficiently autonomous market participants to deserve separate rates; then, having made this threshold determination, Commerce determined that the evidence in the record reasonably supported the conclusion that these respondents in fact did act sufficiently autonomously in terms of managing production and profit and setting prices during the POI.

Commerce requests and is granted permission to reconsider the record evidence regarding whether certain respondents were sufficiently autonomous from the Chinese government in the conduct of their export activities as to qualify for rates separate from the PRC-wide entity. In doing so, Commerce need not require proof of complete freedom from any mere legal possibility of government control. . . .

Commerce has determined that the weight of the evidence suggests the contrary conclusion, and SolarWorld has not pointed to any specific nonspeculative evidence to cast doubt upon this determination. Accordingly, because Commerce has considered and relied upon sufficient evidence to reasonably support the agency’s conclusion that the respondents in question were sufficiently autonomous from government control over their export activities to qualify for a separate rate, and because SolarWorld presents no specific evidence to impugn these reasonable determinations Commerce’s findings with regard to these separate-rate recipients are supported by substantial evidence.. . . ,

SolarWorld also argues that Commerce’s decision to grant separate-rate status to these respondents was arbitrary because, in the past, Commerce has denied such status to respondents who submitted ownership evidence that was later contradicted at verification. But the issue presented here is not analogous to the prior decisions on which SolarWorld relies because the respondents in those cases had submitted ownership information that was contradicted at verification, whereas here there was no similar impeachment of any of the evidence submitted by the challenged separate-rate recipients . . . .

Essentially, SolarWorld believes that the potential for governmental control through such managers or board directors categorically precludes a finding that such companies in fact acted autonomously in conducting their own export activities. The core of SolarWorld’s argument is that these respondents failed to establish de facto autonomy because 1) some of these companies’ shareholders are SOEs (i.e., wholly state-owned companies), with the power to recommend or appoint the company’s board members and senior managers; and 2) some of these companies’ senior managers or board directors contemporaneously also held membership or positions within organizations such as the CPC, NPC, and/or CPPCC. But these facts alone are not dispositive of the de facto autonomy inquiry, because they speak solely to the possibility for governmental control over export activities through these persons, not whether such control was in fact reasonably likely to have been exercised during the POI.

Fundamentally, SolarWorld’s arguments regarding the de facto autonomy of the challenged separate-rate recipients suffer from the same analytical defect as its arguments regarding de jure autonomy – namely that, in an NME country, there will usually be state involvement and authority to intervene in these respondents failed to establish de facto autonomy because 1) some of these companies’ shareholders are SOEs (i.e., wholly state-owned companies), with the power to recommend or appoint the company’s board members and senior managers; and 2) some of these companies’ senior managers or board directors contemporaneously also held membership or positions within organizations such as the CPC, NPC, and/or CPPCC. But these facts alone are not dispositive of the de facto autonomy inquiry, because they speak solely to the possibility for governmental control over export activities through these persons, not whether such control was in fact reasonably likely to have been exercised during the POI. . . .

But this fact alone does not necessarily lead to the conclusion that all NME producers and exporters should be categorically treated as in fact setting their prices according to some centralized strategy. Here, each of the challenged separate-rate recipients submitted evidence that “(1) [t]heir [export prices] are not set by, and are not subject to, the approval of a governmental agency; (2) they have authority to negotiate and sign contracts and other agreements; (3) they have autonomy from the government in making decisions regarding the selection of management; and (4) they retain the proceeds of their export sales and make independent decisions regarding the disposition of profits or financing of losses.” Moreover, “[a]ll of the separate rate respondents at issue reported that neither SASAC nor the government was involved in the activities of the board of directors.”

Footnotes omitted, emphasis added.

TETRAFLUORETHANE CASE—COMMERCE FINDS VERY HIGH ANTIDUMPING MARGINS, BUT ITC SAYS NO INJURY AND DISMISSES THE ENTIRE CASE

On October 15, 2014 in the attached fact sheetfactsheet-prc-1112-Tetrafluoroethane-ad-cvd-final-101514, Commerce found dumping and countervailable subsidization of Imports of 1,1,1,2-Tetrafluoroethane from the People’s Republic of China with antidumping rates for all of China of 280%, in part, by refusing to give Chinese state-owned companies their own antidumping rates. Such a high antidumping rate meant that all 1,1,1,2-tetrafluoroethane from China would be excluded from the US market.

On November 12, 2014, however, the US International Trade Commission based on a 4-2 vote in the attached fact sheet, ITC NO INJURY VOTE TETRFLUORETHANE, determined that the US industry was not injured by reason of imports of 1,1,1,2-Tetrafluorethane from China. The case, therefore, is dismissed and no antidumping and countervailing duty orders will be issued.

CAFC SAWBLADES CASE—NO SEPARATE ANTIDUMPING RATES FOR CHINESE STATE OWNED COMPANIES

On October 24th, in the attached one-sentence opinion, DIAMOND SAWBLADES CAFC DECISION, the Court of Appeals for the Federal Circuit (“CAFC”) in Advanced Technology & Materials Co. v. United States affirmed a decision by the CIT that found Chinese diamond saw blade companies had not done enough to show their independence from China’s government to deserve their own anti-dumping order rates, overturning 20 years of past cases by the Commerce Department. The CAFC affirmed the Commerce Department’s determination to provide Advanced Technology a 164.1 percent margin as the China-wide rate, not the 2.82 percent rate that had been assigned to them separately.

As stated in the September newsletter, in response to the CIT decisions in the Diamond Sawblades case, which are attached to my September blog post, Commerce is making it more difficult for Chinese state owned companies that are under the supervision of the PRC’s State-owned Assets Supervision and Administration Commission of the State Council (“SASAC”) to get their own separate antidumping rate. Commerce continued that position in the 1,1,1, 2 Tetrafluoroethane from China case, but ITC threw out the case for no injury.

TIRES FROM CHINA ANTIDUMPING AND COUNTERVAILING DUTY CASE

Although Senator Kay Hagan sent a letter to Commerce regarding the Tires case, she lost her reelection fight in North Carolina to Republican Tom Tillis apparently, in part, because of her position on trade issue. But there will still be substantial political heat on the Commerce Department over the Tires case.

On November 22, 2014, Commerce announced its preliminary determination in the Tires countervailing duty investigation.  Attached are the Federal Register notice and Commerce Department factsheet  factsheet-prd-passenger-vehicle-light-truck-tires-cvd-prelim-112414 Tires PRC CVD Prelim FR as signed (3). The CVD rates ranged from moderate to very high, with the average rate being moderate.  GITI Tire (Fujian) Co., Ltd. and certain cross-owned companies received 17.69%; Cooper Kunshan Tire Co., Ltd and certain cross-owned companies 12.50%; Shandong Yongsheng Rubber Group Co., Ltd. 81.29% and all other Chinese exporters receiving a rate of 15.69%.

Commerce has found critical circumstances applying countervailing duties to imports 90 days prior to the preliminary determination to cover imports as early as late August.  As it stands now, imports since late August will now be covered by the Countervailing Duty case exposing importers to millions of dollars in retroactive liability.

ALUMINUM EXTRUSIONS

CIRCUMVENTION OF ALUMINUM EXTRUSIONS ORDER??

On the other hand Senator Mitch McConnell sent a May 8th letter about circumvention of the aluminum extrusions antidumping order followed by a letter from Senator Orrin Hatch. Senator Mitch McConnell in January will be the Senate Majority leader as the ranking Republican in the Senate, and Senator Orrin Hatch will be the new Chairman of the Senate Finance Committee. So both Senators will have enormous influence in the new Congress.

On September 4, 2014, Assistant Secretary for Enforcement and Compliance Paul Piquado in a letter posted on my October blog post assured the lawmakers that the agency is “committed to the robust enforcement of the trade remedy laws” to help provide U.S. firms and workers the opportunity to “compete on a level playing field.”

CARBON AND ALLOY STEEL WIRE ROD FROM CHINA FINAL ANTIDUMPING DETERMINATION

On September 2, 2014, in a factual statement, which is posted on my September blog post, the Department of Commerce (Commerce) announced its affirmative preliminary determination in the antidumping duty (AD) investigation of imports of carbon and certain alloy steel wire rod from the People’s Republic of China (China).  Since the Chinese companies failed to respond to the Commerce Department’s questionnaire, they received a preliminary dumping margin of 110.25 percent with the separate rate steel companies receiving a preliminary dumping rate of 106.19 percent.

Because no Chinese companies participated in the initial investigation, on November 13, 2014, in the attached fact sheet, factsheet-prc-carbon-certain-alloy-steel-wire-rod-ad-cvd-final-111314, Commerce announced its final determination finding dumping and Countervailable Subsidization of Imports of Carbon and Certain Alloy Steel Wire Rod from the People’s Republic of China. Commerce handed out 110.25 percent “adverse facts available” anti-dumping duty rates, countervailable subsidies ranging from 178.46 percent for Hebei Iron & Steel to 193.31 percent for Benxi Steel. All other Chinese producers not named were assessed a CVD rate of 185.89.

The agency found critical circumstances that warranted remedial, retroactive duties to be paid by US importers for imports of carbon steel wire rod three months prior to the Commerce Department’s preliminary determination from all Chinese companies in the CVD investigation and all but three Chinese exporters in the AD investigation.

ITC AFFIRMATIVE FINAL INJURY DETERMINATION MONOSODIUM GLUTAMATE FROM CHINA

On November 17, 2014, in the attached Federal Register notice, ITC MONOSODIUM Glutamate, the ITC determined that the US industry was materially injured by reason of imports of monosodium glutamate from China and Indonesia and antidumping and countervailing duty orders will be issued in that case.

COMMERCE DEPARTMENT AFFIRMATIVE PRELIMINARY ANTIDUMPING DETERMINATION—DOMESTIC DRY SEA CONTAINERS FROM CHINA

On November 20, 2014, in the attached fact sheet, factsheet-prc-53ft-domestic-dry-containers-ad-prelim-112014, Commerce announced its affirmative preliminary antidumping determination in the 53-foot domestic dry containers (domestic dry containers) from China case finding dumping margins ranging from 24.27% to 153.24%.

NOVEMBER ANTIDUMPING ADMINISTRATIVE. REVIEWS

On November 3, 2014, Commerce published in the Federal Register the attached notice, NOV REVIEWS, regarding antidumping and countervailing duty cases for which reviews can be requested in the month of October. The specific antidumping cases against China are: Certain Cut-to-Length Carbon Steel Plate, Certain Hot-Rolled Carbon Steel Flat Products, Certain Coated Paper Suitable for High-Quality Print Graphics Using Sheet-Fed Presses, Diamond Sawblades and Parts Thereof, Fresh Garlic, Lightweight Thermal Paper, Paper Clips, Polyethylene Terephthalate Film, Sheet and Strip, Pure Magnesium in Granular Form, Refined Brown Aluminum Oxide, Seamless Carbon and Alloy Steel Standard Line, and Pressure Pipe, Seamless Refined Copper Pipe and Tube.

The specific countervailing duty cases are:

Certain Coated Paper Suitable for High-Quality Print Graphics Using Sheet-Fed Presses, Lightweight Thermal Paper, Seamless Carbon and Alloy Steel Standard, Line, and Pressure Pipe.

For those US import companies that imported Carbon Steel Plate, Coated Paper, Diamond Sawblades, Garlic and the other products listed above from China during the antidumping period November 1, 2013-October 31, 2014 or during the countervailing duty review period of 2013 or if this is the First Review Investigation, for imports imported after the Commerce Department preliminary determinations in the initial investigation, the end of this month is a very important deadline. Requests have to be filed at the Commerce Department by the Chinese suppliers, the US importers and US industry by the end of this month to participate in the administrative review.

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

In my experience, many US importers do not realize the significance of the administrative review investigations. They think the antidumping and countervailing duty case is over because the initial investigation is over. Many importers are blindsided because their Chinese supplier did not respond in the administrative review, and the US importers find themselves liable for millions of dollars in retroactive liability. Recently in the Shrimp from China antidumping case, for example, almost 100 Chinese exporters were denied a separate antidumping rate.

On October 30, 2014, in the attached notice, OCT REVEW INVESTIGATIONS, based on requests in September, Commerce initiated several review investigations against a substantial number of Chinese companies in the Lined Paper Products, Kitchen Appliance Shelving and Racks, Certain New Pneumatic Off-The-Road Tires, Freshwaters Crawfish Tailmeat, and Narrow Woven Ribbons with Woven Selvedge cases.

NEW ANTIDUMPING AND COUNTERVAILING DUTY CASE AGAINST MELAMINE FROM CHINA

On November 12, 2014, Cornerstone Chemical Company filed a new antidumping and countervailing duty petition against Melamine from China and Trinidad and Tobago.  The petition alleges antidumping rates of 263.76 to 374.14 on imports of Chinese melamine.

Melamine is “a fine, white crystalline powder that is used primarily to manufacture amino resins, the major end uses of which include surface coatings, laminates, molding compounds, paper treatment, adhesives, and textile-treatment applications in the automotive, appliance, dinnerware, furniture, fabric, and wood paneling industries.

Attached are  a short version of the petition along with an Extract which includes a list of the Chinese companies and US Import Companies that are the targets of this case,  Petition on Melamine from PRC & Trinidad and Tobago ExtractPage1. The targeted Chinese companies are listed below.

Allied Chemicals Inc. China, Anhui Garments Shoes & Caps Industrial Group Co. China, Anhui Jinhe Industrial Co., Ltd., Anhui Sunson Chemical Group Co., Ltd., ChemChina, China Haohua (Group) Corp., Chengdu Yulong Chemical Co., Ltd., CNPC Urumqi Petrochemical General Factory, CNSG Anhui Hong Sifang Co., Ltd., Dalian Rion Chen Intl. Trade Co. Ltd. China, Dezhou Defeng Chemical Co., Ltd., Far-Reaching Chemical Co., Ltd. China, Forwarder Chinese, Fujian Sangang (Group), Full Shine Group Co., Ltd. China, Future Foam Asia Inc. China, Hebei Jinglong Fengli Chemical Co., Ltd., Hefei Tianfeng Import & Export Co Ltd China, Henan Jinshan Chemical Group Co., Ltd., Henan Yuhua Fine Chemical Co., Ltd., Henan Zhongyuan Dahua Group Co., Ltd., Holitech Technology Co., Ltd. China, Hubei Huaqiang Chemical Group Co., Ltd., JianFeng Chemicals, Jiangsu Heyou Group Co., Ltd., Jiangsu Sanmu Group Corporation, Kaiwei Investment Group, Kingboard (Panyu Nansha) Petrochemical Co., Ltd., M And A Chemicals Corp China, Nanjing Deju Trading Co Ltd China, Nanjing Jinxing Petrochemical Enterprise, Nantong Zixin Industrial Co., Ltd., OCI Trading (Shanghai) Co., Ltd. China, Panjin Zhongrun Chemical Co., Ltd., Puyang San’an Chemical Co., Ltd., Qingdao Shida Chemical Co., Ltd. China, Shandong Jinmei Mingshui Chemical Co., Ltd., Shandong Liaherd Chemical Industry Co. Ltd., Shandong Luxi Chemical Co., Ltd., Shandong Sanhe Chemical Co., Ltd., Shandong Shuntian Chemical Group Co. China, Shandong Xintai Liaherd Chemical Co., Ltd., Shandong Yixing Melamine Co., Ltd., Shanxi Fenghe Melamine Co., Ltd., Shanxi Tianze Coal Chemical Group Co., Ltd., Sichuan Chemical Works Group Ltd., Sichuan Golden-Elephant Sincerity Chemical Co., Ltd., Sichuan Meifeng Group Co., Ltd., Sichuan Jade Elephant Melamine Scientific and Technological Co., Ltd., Sinopec Jinling Petrochemical Co., Ltd., Well Hope Enterprises Limited, Xinji Jiuyuan Chemical Co. Ltd. China, Zhejiang Fuyang Yongxing Chemical Co., Ltd., Zhejiang Medicines & Health Product Imp. & Exp. Co. Ltd. China, Zhongyuan Dahua Group Company Ltd China, Zhucheng Liangfeng Chemical Co., Ltd.

RUSSIA—US SANCTIONS AS A RESULT OF UKRAINE CRISIS

On September 3, 2014, I spoke in Vancouver Canada on the US Sanctions against Russia, which are substantial, at an event sponsored by Deloitte Tax Law and the Canadian, Eurasian and Russian Business Association (“CERBA”). Attached are a copy of the powerpoint for the speech and a description of our Russian/Ukrainian/Latvian Trade Practice for US importers and exporters. US SANCTIONS RUSSIA RUSSIAN TRADE PRACTICE

There is a great deal of confusion and uncertainty surrounding business with Russian companies. As sanctions continue to expand against Russia, any company interested in doing business with Russia must constantly check the regulations and hire legal counsel. Every single transaction with Russian entities is a potential target of the sanctions, and, therefore, any US company interested in doing business with Russia must be extremely vigilant. The US regulations mirror regulations in Canada and the EU, but there are differences.

There are two groups of US regulations. The most powerful regulations are administered by Treasury—Office of Foreign Assets Control (“OFAC”). A second group of regulations have been issued by the Commerce Department’s Bureau of Industry and Security (BIS) blocking exports of certain energy-sector technologies.

With regards to the sanctions administered by OFAC, US Presidential Executive Orders 13660, 13661, and 13662 define how U.S. Government will identify targets of sanctions (e.g., financial services, energy, metals and mining, engineering, and defense sectors and government agencies and officials). The specific OFAC regulations regarding Ukraine are set forth in 31 CFR 589 –”Blocking”/“Asset Freezing” sanctions prohibiting transactions with specific persons and entities. The regulations have been posted on my blog, but they do change as the sanctions evolve.

Pursuant to the OFAC regulations, U.S. persons are prohibited from conducting transactions, dealings, or business with Specially Designated Nationals and Blocked Persons (SDNs). A US person must also block the property or interest in property of SDNs that they hold or that is located in the United States. The blocked persons list can be found at http://sdnsearch.ofac.treas.gov/. See also: www.treasury.gov/resource-center/sanctions/programs/pages/ukraine.aspx . The list includes the Russian company, United Shipbuilding, and a number of Russian Banks, including Bank Rossiya, SMP Bank, Bank of Moscow, Gazprombank OAO, Russian Agricultural Bank, VEB, and VTB Bank.

On July 29, 2014, OFAC issued a new “Sectoral Sanctions Identification List” (the “SSI List”) that identifies specific Russian persons and entities covered by these sectoral sanctions. See: www.treasury.gov/resource-center/sanctions/SDN-List/pages/ssi_list.aspx. U.S. persons are prohibited from engaging in certain transactions with persons and entities on the SSI List, but are not required to “freeze” or “block” property or interests in property of such persons and entities as if they were SDNs.

Thus companies or persons on the SSI list may become named SDNs in the future. SSI and SDN Lists are not static but evolving. Lists will likely expand and have expanded based on Russian behavior in Ukraine. Everything could change overnight. Do not rely on a dated list. Keep checking. www.treasury.gov/resource-center/sanctions/SDN-List/pages/ssi_list.aspx

On September 11, 2014, the US and the European Union announced new restrictions on Russian access to capital market. The new sanctions target Russian financial, energy and defense companies and make it more difficult to make loans to the five Russian state-owned banks, by tightening debt financing restrictions by reducing the maturity period of the new debt issued by those institutions from 90 days to 30 days. The companies targeted in the new round of OFAC sanctions include OAO Gazprom, Roseneft, Lukoil OAO, pipeline operator, Transneft, and Rostec, a Russian institution dealing in industrial technology products, along with the nation’s largest financial institution, Sberbank of Russia.

OFAC also added another set of Commerce export restrictions on certain oil development technologies by broadening the scope of the items that are banned and adding Gazprom, Lukoil and three other energy firms to the list of specifically banned export destinations.

On November 11, 2014, the White House indicated that the latest fighting between the Ukraine, which has been triggered by Russian aid to the separatists, is likely to trigger another round of sanctions. Deputy National Security Adviser Ben Rhodes stated, “What Russia will find is, if they continue to do that, it’s a recipe for isolation from a broad swath of the international community.”

Putin’s isolation was indicated by his presence at the G20 talks in Australia, where he was given a very “frosty” reception, which, in part, led to a decision to leave the talks early.

CUSTOMS

We have observed many instances where Customs is cracking down on imports of Chinese solar panels with third country solar cells in them. Customs forces the company to provide extensive documentation to prove that the third country solar cells are actually in the Chines solar panels. Many importers are not able to comply and face antidumping rates as high as 250% on imports.

IP/PATENT AND 337 CASES

337 CASES

There have been developments at the US International Trade Commission (“ITC”) in 337 cases and patent area.

SUPREMA CASE—INDUCED PATENT INFRINGEMENT 337 CASES

On October 15th, the ITC filed the attached brief, ITC COMMISSION BRIEF, at the Court of Appeals for the Federal Circuit (“CAFC”) in the En Banc appeal in the Suprema Inc. V. US International Trade Commission case. In the prior panel decision, the CAFC held that the ITC could not use induced patent infringement to issue an exclusion order because at the time of the infringement, the imported products did not directly infringe the patents in question. The imported products infringed the patent only after arriving in the United States and being combined with other products in the United States. The ITC asked the entire CAFC to review the panel determination, and the CAFC agreed to an en banc proceeding before all the CAFC judges.

In the brief the ITC argues that the case will have “significant implications for patent holders that rely on inducement liability for protection of their inventions, especially those that hold claims to inventive methods and those that operate industries in the United States.”

The Commission went on to state in the brief:

“Appellants contend that when Congress prohibited the importation of “articles that—infringe” a patent under section 337, Congress meant to excuse the importation of articles intended to induce patent infringement. There is absolutely no support in the language of the statute or the legislative history of section 337 for Appellants’ construction. The importation of “articles that—infringe” via inducement under § 271(b) of the Patent Act is no less prohibited by section 337 than the importation of “articles that—infringe” directly under § 271(a).

The legislative history of the Tariff Act makes clear that it was intended to prevent “every type and form of unfair practice” in the importation of goods. . . . From the beginning, courts understood inducement of patent infringement to be an unfair practice within the scope of the Act. . . .

The only way the Court could adopt Appellants’ interpretation of section 337 would be to ignore the Patent Act, the language of section 337, the intent of Congress, and decades of established practice. This the Court should not do.

To prove the importation of “articles that—infringe” via inducement under section 337 requires proof of three essential elements: (1) importation of an article that is the means of infringement; (2) an intent that the imported article be used to infringe a patent, or willful blindness to infringement; and (3) an act of direct infringement involving the article. . . . The record on review contains substantial evidence of each element. . . .”

The US Government through the Justice Department filed the attched Amicus Brief, US GOVERNMENT SUPREMA BRIEF, which states in part:

Congress charged the International Trade Commission (“Commission” or “ITC”) with the responsibility to exclude from the United States “articles that . . . infringe a valid and enforceable United States patent.” 19 U.S.C. § 1337(a)(1)(B)(i). The Commission reasonably interprets that statutory command to prohibit the importation not merely of fully assembled patented inventions, but of all articles for which infringement liability may be imposed under the Patent Act. No one disputes that, in an ordinary civil action for infringement in district court, a person who imports articles in an intentional scheme to induce infringement of a patent within the United States “shall be liable as an infringer.” 35 U.S.C. § 271(b). The Commission sensibly construes Section 337 in pari materia with that undisputed interpretation of the Patent Act, treating the articles imported in such an infringing scheme as “articles that . . . infringe.”

The Commission acted well within its discretion in adopting that construction of the Tariff Act. The Commission has no choice but to exercise interpretative judgment in applying Section 337(a)(1)(B)(i). As appellants recognize . . ., nothing in the Tariff Act defines the phrase “articles that . . . infringe.” Nor do the patent laws speak in terms of infringing “articles.” Under the Patent Act, persons infringe, not things.  The article by itself cannot literally “infringe” under Section 271 any more than a tract of land can trespass. Thus, in enacting Section 337(a)(1)(B)(i), Congress necessarily expected and intended that the Commission would interpret “articles that . . . infringe” in a manner that appropriately translates the domestic in personam liability provisions of the Patent Act into the in rem framework of exclusion proceedings under the Tariff Act.

The Commission’s construction of Section 337 reasonably resolves that conceptual dilemma by construing the phrase “articles that . . . infringe” to encompass any article whose importation would support infringement liability under the Patent Act, including articles imported for the purpose of inducing patent infringement. That interpretation is consistent with the plain language of both Section 337 and Section 271(b) and with the underlying policies and purposes of the trade laws.

And it has the significant benefit of preventing importers from evading the prohibitions of the Tariff Act through “the most common and least sophisticated form of circumvention, importation of the article in a disassembled state.”

There is little doubt, moreover, that the Commission’s interpretation best effectuates Congress’s intent in 1988 when it enacted Section 337(a)(1)(B)(i). . . . In an uncodified portion of the 1988 legislation, Congress expressly found that Section 337 “has not provided United States owners of intellectual property rights with adequate protection against foreign companies violating such rights,” and declared that the purpose of the 1988 legislation was “to make [Section 337] a more effective remedy for the protection of United States intellectual property rights.”. . . .

That statutory declaration of purpose is impossible to reconcile with the panel’s view that Congress intended to render the Commission “powerless to remedy acts of induced infringement.” . . . By the time of the 1988 amendments, the Commission had for many years construed Section 337 to prohibit, as an unfair trade practice, the active inducement of patent infringement in the United States. It is difficult to imagine why a Congress seeking to enhance the protection of intellectual property rights in Commission proceedings would simultaneously have acted to strip the Commission of its power to redress such infringement.

And it is even more doubtful that Congress would have done so silently and obliquely, without any explanation or even acknowledgment in the legislative history. Congress does not, as the Supreme Court has observed, “hide elephants in mouseholes.” . . . .

In sum, the Commission construes Section 337 to provide remedies against the same forms of infringement at the border that district courts are empowered to redress through in personam infringement actions within the United States. Because that interpretation is reasonable and consistent with “the language, policies and legislative history” of the Tariff Act, it is entitled to deference. . . .

In addition, the atthached briefs were filed by ITC Trial Lawyers Association and Nokia in support of the ITC, ITC TLA Suprema BRIEF Nokia Suprema BRIEF.

SECTION 337 COMPLAINTS

NEW 337 COMPLAINT AGAINST FOOTWARE PRODUCTS FROM CHINA

On October 14th, Converse Inc. filed a new 337 IP case against footwear products/sneakers from China for infringement of Converse’s registered and common law trademarks. Relevant parts of the petition are posted on my October blog post along with the ITC notice. The respondent companies are set forth below:

Description: 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 Footwear Products . The proposed respondents are: Skechers U.S.A., Inc., Manhattan Beach, CA; Wal-Mart Stores, Inc., Bentonville, AR; A-List, Inc., d/b/a Kitson, Los Angeles, CA; Aldo Group, Canada; Brian Lichtenberg, LLC, Los Angeles, CA; Cmerit USA, Inc., d/b/a Gotta Flurt, Chino, CA; Dioniso SRL, Italy; Edamame Kids, Inc., Canada; Esquire Footwear, LLC, New York, NY; FILA U.S.A., Inc., Sparks, MD; Fortune Dynamic, Inc., City of Industry, CA; Gina Group, LLC, New York, NY; H & M Hennes & Mauritz LP, New York, NY; Highline United LLC d/b/a Ash Footwear USA, New York, NY; Hitch Enterprises Pty Ltd d/b/a Skeanie Unit 3, Australia; Iconix Brand Group, Inc., d/b/a Ed Hardy, New York, NY; Kmart Corporation, Hoffman Estates, IL; Mamiye Imports LLC d/b/a Lilly of New York, Brooklyn, NY; Nowhere Co., Ltd. d/b/a Bape, Japan; OPPO Original Corp., City of Industry, CA; Orange Clubwear, Inc., d/b/a Demonia Deviant, Westminster, CA; Ositos Shoes, Inc., d/b/a Collection’O, South El Monte,CA; PW Shoes Inc., Maspeth, NY; Ralph Lauren Corporation, New York, NY; Shenzhen Foreversun Industrial Co., Ltd (a/k/a Shenzhen Foreversun Shoes Co., Ltd), China; Shoe Shox., Seattle, Washington; Tory Burch LLC, New York, NY; Zulily, Inc., Seattle, Washington; Fujian Xinya I & E Trading Co., Ltd., China; Zhejiang Ouhai International Trade Co., Ltd., China; and Wenzhou Cereals Oils & Foodstuffs Foreign Trade Co., Ltd., China.

On November 12, 2014, the ITC in the attached notice instituted the 337 case against Footwear from China, ITC INSTITUTION CONVERSE CASE. Chinese companies must respond to the complaint in about 30 days. If the Chinese companies fail to respond, they can be found in default and exclusion orders against their products can be issued.

On the same day that Converse filed the section 337 case, it also filed a trademark complaint for damages in the Federal District Court in Brooklyn, which is attached to my October blog post.

NEW 337 CASE AGAINST SEMICONDUCTOR CHIPS FROM TAIWAN AND HONG KONG

On November 21, 2014, Samsung Electronics Co., Ltd. and Samsung Austin Semiconductor,LLC filed a section 337 case against Graphics Processing Chips, Systems on a Chip. The respondent companies are listed below:

NVIDIA Corporation, Santa Clara, California; Biostar Microtech International Corp.. Taiwan; Biostar Microtech (U.S.A.) Corp., City of Industry, California; Elitegroup Computer Systems Co. Ltd., Taiwan; Elitegroup Computer Systems, Inc., Newark, California; EVGA Corp., Brea, California; Fuhu, Inc., El Segundo, California; Jaton Corp., Fremont, California; Mad Catz, Inc., San Diego, California; OUYA, Inc., Santa Monica, California; Sparkle Computer Co., Ltd., Taiwan; Toradex, Inc., Seattle, Washington; Wikipad, Inc., Westlake Village, California; ZOTAC International (MCO) Ltd., Hong Kong; ZOTAC USA, Inc., Chino, California.

PATENT AND IP CASES IN GENERAL

INTERDIGITAL WINS JURY CASE AGAINST ZTE

On October 28, 2014, in the attached jury form, ZTE Verdict, a Delaware federal jury determined that smartphones made by Chinese company, ZTE, infringed three patents of InterDigital Communications. The Jurors also determined that ZTE failed to prove the patents obvious. This jury verdict came after a series of setbacks for InterDigital, which lost a series of cases, including a 337 case at the ITC.

InterDigital creates revenue by licensing thousands of patents it develops to various high tech companies and filing cases against companies, such as ZTE and Nokia, that refuse to pay licensing fees.

MADE IN THE USA—FTC AND CALIFORNIA FALSE ADVERTISING PROBLEM

Recently cases involving the Made in US requirement have increased because of stricter requirements by the State of California. FTC guidelines state that an unqualified “Made in USA” label can go on any goods that are “all or virtually all” made domestically in the United States, but the words “virtually all” are open to interpretation based on the specific facts of the case.

But California has stricter guidelines than the FTC requiring the entire product to be made in the US. If even one small part of a product is foreign, California state law says calling the product “Made in the USA” amounts to false advertising. This law has provoked a number of consumer/class action lawsuits filed in California against US manufacturers and retailers.

The California law was passed in 1961 to shield domestic producers from competitors who might get a pricing edge by using large amounts of cheap imported parts to manufacture goods labeled “Made in USA.” The problem is that it has become increasingly difficult to avoid using at least some imported content in a US product.

COURT REFUSES TO DISMISS JEANS CASE AGAINST NORDTROM AND MADE IN USA JEANS

On October 27th, in the attached David Paz v. AG Adriano Goldschmeid Inc. et al, JEANS COURT ORDER, a California Federal Judge refused to dismiss a case for falsely marketing jeans as Made in USA, which they actually contain foreign parts. The Judge stated:

“Although the laws set out different standards for the use of “Made in U.S.A.” labels, it would not be impossible for Defendants to comply with both laws. Outside California, Defendants could use the “Made in U.S.A.” labels, but inside California, they could not. This may be burdensome for Defendants, but it is not impossible for them to do so.” . . .

LAND’S END

On October 29th in the Elaine Oxina v. Lands’ End Inc. case, Elaine Oxina  filed a new Made in USA class action case against clothing retailer Lands’ End Inc. accusing the company of labeling foreign-made apparel as produced in the U.S., a tactic that a California consumer alleges has allowed the business to sell items at a higher price. The complaint alleges:

“Consumers generally believe that ‘Made in USA’ products are of higher quality than their foreign-manufactured counterparts. Due to Defendants’ scheme to defraud the market, members of the general public were fraudulently induced to purchase Defendant’s products at inflated prices.”

The complaint says that Oxina purchased a necktie from Lands’ End’s online store under the assumption that the product was produced domestically. The necktie “was described using the ‘Made in U.S.A.’ country of origin designation, when the product actually was made and/or contained component parts made outside of the United States.”

The complaint also states that an inspection of a fabric tag attached to the necktie revealed that the item “is wholly made” in China. The complaint asserts claims against Lands’ End for false advertising and violations of California’s business code, adding that the alleged damages are in excess of $5 million.

Many retailers are now facing class actions over California’s tough “Made in the USA” labeling law. Retailers are allegedly selling apparel marketed as being American-made, but including foreign-made fabrics, zippers, buttons, rivets and other components.

The lawsuits also illustrate why California differs from the Federal Trade Commission, which also oversees product labeling but has a more relaxed position that is followed by other states. Unlike California, which says every component must be domestic, the FTC allows for some flexibility, saying a “Made in the USA” label can be used if “all or virtually all” of a specific product is made domestically. Getting every component of a piece of clothing from the U.S. has become increasingly difficult as business supply chains have become global.

NEW PATENT AND TRADEMARK CASES AGAINST CHINESE AND TAIWAN COMPANIES

On October 22, 2014, in the attached complaint, CHINA COY SUES US COY PATENT INFRINGE, a Chinese company sued Dongguan Prestige Sporting Products Co., Ltd. V. Merits Co. Ltd., a Chinese company, and Merits Health Product Inc., a Florida corporation, for patent infringement of a folding seat rack.

On October 30, 2014, in the attached compliant, CHINA TRADEMARK CASE, Samsung Techwin America, Inc. filed a grey market trademark case against Xtreme Micro LLC and Zhangzhou Peiyu Jinhe Trading Co., Ltd.

On November 5, 2014, Robert Bosch filed the attached patent case, NINGBO WINDSHIELD WIPER CASE, for wiper blades against Ningbo Xinhai Aiduo Automobile Wiper Blade Manufactory Co., Ltd.

On November 7, 2014, Aztrazeneca Pharmaceuticals LP and Astrazeneca UK Ltd. filed the attached pharmaceutical patent case, TAIWAN PHARMA COMPLAINT, against a Taiwan company, Pharmadax USA, Inc., Pharmadax Inc., and Pharmadax Guangzhou Inc.

On November 10, 2013 Dura-Lite Heat Transfer Products Ltd., a Canadian corp., Glacier Radiator Manufacturing Ltd., and Philip Lesage filed the attached patent case, ZHEJIANG MACHINERY, against Zhejiang Yinlun Machinery Co., Ltd. and Yinlun USA, Inc.

On November 14, 2014, the attached complaint, CHANGZHOU KAIDI, was filed by Linak A/S and Linak U.S., Inc. v. Changzhou Kaidi Electrical Co. and Kaidi LLC for patent infringement of innovative electric linear actuator systems for use in many product sectors, including hospital and healthcare equipment.

On November 17, 2014, Tenax SPA filed the attached trademark case, WUHAN TRADEMARK against Wuhan Keda Marble Protective Materials Co., Ltd. for imports of adhesive resins.

PRODUCTS LIABILITY

On October 17, 2014, Joan Kazkevicius filed the attached products liability case, CHINA PRESSURE COOKER CASE, regarding pressure cookers against HSN, Inc., HSNI LLC, W.P. Appliances, Inc., Wolfgang Puck Worldwide, Inc., W.P. Productions, Inc., Zhanjiang Hallsmart Electrical Appliances Co., Ltd., and Guangdong Chuang Sheng Stainless Steel Products Co., Ltd.

FOOD AND FDA RESTRICTIONS

US LIFTS RESTRICTIONS ON CHICKEN AND CITRUS IMPORTS

Despite objections from public consumer groups, on November 5th, the U.S. Department of Agriculture’s Food Safety and Inspection Service stated that it had certified four Chinese poultry product producers to export processed chicken products to the U.S. The USDA accepted the certification of the facilities to export chicken products as long as they are heat-treated or cooked and made from birds originally slaughtered in the U.S. or another approved country such as Canada. The facilities still must be certified for this purpose by Chinese authorities.

The irony is that the Chinese government continues to block US chicken using its antidumping law.

Despite objections from US citrus growers, the U.S. Department of Agriculture (USDA) has proposed to open the continental United States to imports of citrus fruits from China. US citrus companies argue that the Chinese imports could introduce devastating pests to U.S. orchards and invite heavy economic competition from subsidized Chinese farmers.

SEAFOOD

On November 12th, the FDA announced that it may decrease port-of-entry inspections of farm-raised seafood from China and increasingly entrust Chinese authorities with verifying that the country’s aquaculture exports are free of illegal animal drug residues.

CHINESE RESTRICTIONS ON US FOOD PRODUCTS

On Aug. 22, 2014, Agriculture Secretary Tom Vilsack announced that California citrus farmers will be able to resume exports to China this season. A series of scientific exchanges between the USDA’s Animal and Plant Health Inspection Service (APHIS) and China’s General Administration of Quality Supervision, Inspection, and Quarantine (AQSIQ) resulted in an agreement for California citrus to again be exported to China. APHIS and USDA’s Foreign Agricultural Service worked closely with the U.S. citrus industry to ensure the successful outcome.

In April 2013, California-origin citrus was suspended from entering the Chinese market due to interceptions of brown rot (Phytophthora syringae), a soil fungus that affects stored fruit. Over the next year, USDA worked with China to address China’s plant health concerns and reopen the market for California citrus exports.

In a statement following the USDA announcement, Western Growers Association Executive Vice President Matt McInerney said China was the third-largest market for California citrus exports before the ban. The USDA release said California citrus exports have a total annual value of $30 million.

On September 15th, it was announced that USDA and USTR officials were in Beijing to discuss the implementation of the Trade Facilitation Agreement (TFA) and in particular a meeting of the sanitary and phytosanitary (SPS) working group of the U.S.-China Joint Commission on Commerce Trade (JCCT), where the agenda will likely touch upon issues like China’s ban on U.S. beef and its regulatory process for approving biotechnology traits. China closed its beef market to U.S. exports due to a 2003 outbreak of bovine spongiform encelopathy (BSE) – or “mad cow” disease — and has since set a number of preconditions for opening it, including a U.S. livestock traceability system.

CHINA LIFTS RESTRICTIONS ON WASHINGTON APPLES

On October 31, 2014, in the attached statement from Washington State, CHINA LIFTS WASHINGTON APPLE SUSPENSION, Agriculture Secretary Tom Vilsack announced that China is lifting its suspension of red and golden delicious apple imports from Washington State. The Chinese market for Washington apples was valued at $6.5 million in calendar year 2011.

In 2012, China’s General Administration of Quality Supervision, Inspection and Quarantine (AQSIQ) suspended access for Washington red and golden delicious apples due to the repeated interception of three apple pests AQSIQ considers significant: speck rot, bull’s-eye rot, and Sphaeropsis rot. To lift this suspension, USDA’s Animal and Plant Health Inspection Service (APHIS) worked with the U.S. apple industry to develop additional safeguarding measures that address China’s concerns about these pests. Some of these new measures include cold storage of apples and visual inspection of apples prior to shipping to ensure there is no evidence of disease.

CHINESE INVESTMENT AND PRODUCTION IN UNITED STATES

See the very powerful video about Chinese investment in the US creating 70 to 80,000 US Production Jobs. The investment is in the billions and includes textiles.

http://money.cnn.com/video/news/economy/2014/10/23/we-the-economy-made-by-china-in-america.cnnmoney/index.html?iid=HP_River

ANTITRUST—SOLAR AND MAGNESITE

There have been major developments in the antitrust area both in the United States and in China.

SOLAR ANTITRUST CASE DISMISSED

On November 3, 2014, a Federal Judge in Michigan, in the attached opinion, ACTUAL ORDER DISMISS CHINESE SOLAR ANTITRUST CASE, dismissed a $950 million antitrust lawsuit accusing several Chinese solar panel producers of participating in a price-fixing scheme by finding that the US company have failed to establish standing. The US Judge ruled that the Chinese companies did not have the power to set up barriers to entry into the solar panels market and therefore could not eventually charge supracompetitive prices to recoup losses from selling solar panels at below cost in order to gain market share. As the Judge stated: “The court finds that plaintiff has failed to allege a dangerous probability of recoupment and, therefore, has failed [to] allege antitrust standing.”

On November 17th, in the attached complaint, RECONSIDERATION SOLAR CHINA PRICE FIX, Energy Conversion Devices Inc. urged a Michigan federal judge on Friday to reconsider his decision. ECD accused the Chinese companies of orchestrating a complex price-fixing scheme to sell inferior solar panels in the U.S. at artificially low prices by dumping their products in the US and thereby achieve market domination. The Judge’s original dismissal opinion had found that below-cost pricing alone is not enough to prove antitrust injury.

NEW MAGNESIUM ANTITRUST COMPLAINT

In response to the Court order dismissing the Magnesium Antitrust case, with options to amend the complaint, which is attached to my last blog post, on November 3, 2014, Animal Science Products, Inc., Resco Products, Inc., and S&S Refractories filed the attached new antitrust complaint, NEW MAGNESIUM COMPLAINT. The complaint, which will be attached to my blog, is against Chinese magnesium companies, Xiyang Fireproof Material, Co., Ltd., Sinosteel Corp., Sinosteel Trading Co., Liaoning Jiayimetals & Minerals Co., Ltd., Liaoning Foreign Trade General Corp., Liaoning Jinding Mangnesite Group., Dalian Golden Sun Import & Export Corp., Haicheng Houying Corp., Ltd., and Haicheng Huayu Group Import & Export Co., Ltd, Haicheng Pailou Magnesite Ore Co., Ltd. and Yingkou Huachen (Group) Co., Ltd.

AUTO NEWS — CONFESSIONS OF A PRICE FIXER

On November 16, 2014 Auto News published an interesting article “Confessions of a Price Fixer”. See http://www.autonews.com/article/20141116/OEM10/311179961/confessions-of-a-price-fixer

The article described how a Japanese executive used to the comfortable expat life, was one of dozens of white collar criminals arrested and jailed for what has become the largest price fixing antitrust case brought by the US Justice Department. The article goes on to state that the Japanese executive’s guilty plea and prison time came with a special offer from the Japanese company for which he fixed the prices. You get to keep your job after you leave prison and the company “will support me for the rest of my life.”

Today, the Japanese executive has spent his time in prison, but is now back at work at the company. But that situation is not unusual, the unwritten rule in Japanese culture is that the Japanese executive gets rewarded for not spilling the beans and cooperating with the Government’s investigation.

In America, the case has already made history with record fines more than $2.4 billion. 31 auto parts suppliers, mostly Japanese, have pled guilty to prices for parts from wire harnesses to wiper switches. Forty-six individuals, almost exclusively Japanese, have been charged. No one has challenged the charges in court; 26 individuals agreed to prison instead. Another 20 have yet to enter pleas or are otherwise ignoring their indictments.

But most the executives are still employed by their companies, even though the executives were indicted by the U.S. government on felony charges, which carry a maximum penalty of 10 years in prison and a $1 million criminal fine for individuals.

The corporate leniency has become a major international issue as U.S. Assistant Attorney General William Baer warned that his antitrust division would consider probation and corporate monitors for companies harboring sensitively placed executives who have not answered the charges against them.  As one Justice Department official stated, “A U.S. company would never keep employing those individuals. In the United States, the first thing they would want to do is fire everybody. But that’s not the instinct at Japanese companies.”

The Japanese company did play tough pressuring the Japanese executive to plead guilty because a company can expect lower fines if it cooperates promptly.

In exchange, the company would take care of his family while he was in jail and find a position for him after he was freed.

Price fixing in Japan is an administrative crime and there is no real enforcement in the criminal area, but Japanese companies and executives have become very afraid. Now the Japanese companies are facing private triple damage actions brought by angry consumers.

CHINA ANTI-MONOPOLY CASES

Although this issue was raised by President Obama at the meetings with the Chinese government officials in Beijing, nothing of substance was reported

T&D MICROSOFT ARTICLE

In the October 2014 report on Chinese antitrust law by the Chinese T&D Law Firm, T&D Monthly Antitrust Report of September 2014, Chinese antitrust lawyer John Ren had this to say about the allegation that the Chinese Anti-Monopoly law discriminates against foreign companies:

NDRC Responded to the Query about Unfair Anti-Monopoly Practices: All People Are Equal before Law

October 30, 2014

The Anti-Monopoly Law has been effective since 2008 and was reinforced with respect to law enforcement in 2013, and then several significant anti-monopoly actions caused great sensations this year. Throughout this period, all circles have increasingly focused on ruling markets by law, breaking down monopoly privilege, and ensuring fair competition among market players. In the meantime, law enforcement with regard to anti-monopoly has drawn great attention.

Recently, several foreign-funded enterprises and foreign brands have been under investigation, and some wonder “whether China’s anti-monopoly undertaking only focuses on foreign-funded companies and is thus unfair”. Concerning this situation, Li Pumin, Secretary General of NDRC (National Development and Reform Commission), stressed in today’s “NDRC with regard to Acceleration of Building Rule of Law Authorities” press conference that all people are equal before the law, and anyone violating Chinese law shall be punished, whether they are foreign-funded or domestic companies.

He pointed out that China’s anti-monopoly law enforcement was not just targeting foreign-funded enterprises; NDRC, in line with the Anti-Monopoly Law, enforced the law with regard to those enterprises and actions restraining fair competition, which involved not only domestic enterprises but also foreign-funded enterprises.

”The Anti-Monopoly system has been rigorously designed. A vast number of large enterprises are involved, various market players are concerned about the system, and NDRC has been promoting the system, as well. In the past few years, NDRC kept summing up and exploring, and has enacted regulations on anti-price monopolies and procedure of administrative execution regarding anti-price monopoly” said Li Kang, the Chief in Laws and Regulations Department of NDRC, in regard to the work that NDRC has done in improving anti-monopoly law enforcement.

Li Kang pointed out that anti-monopoly law enforcement shall be quantified, standardized, and elaborated upon, aiming at ensuring fair, just and open anti-price monopoly enforcement. He stated further that NDRC will expand the anti-monopoly law in both substantive and procedural aspects to raise its enforceability, and in the meantime will confine and normalize NDRC’s law enforcement activities. . . .

SECURITIES

CHINESE COMPANY PUDA COAL DEFAULTS IN SECURITIES CASE

On November 18, 2014, in In re: Puda Coal Inc., a Federal District Court entered the attached default judgment, DEFAULT JUDGMENT PUDA COAL. against Chinese company Puda Coal Securities Inc., which had been sued by an investor class, for selling its sole asset to a private equity firm without telling investors for months and lying about in its IPO plans.

FOREIGN CORRUPT PRACTICES ACT (“FCPA”)

DORSEY ANTICORRUPTION DIGEST 0CTOBER 2014

The attached Dorsey’s October 2014 Anticorruption Digest, Anti_Corruption_Digest_Oct2014, had this to say about China:

“National Development and Reform Commission

According to reports, Liu Tienan, former deputy of the National Development and Reform Commission, confessed in court to taking bribes from various companies, including a Toyota Motor Corporation joint venture. The court said that: “The oral representation made by the defendants Liu Tienan on the allegations is: I have taken the initiative to confess to these facts of the allegations.”

He and his son, Liu Decheng, were reportedly charged with taking $5.8 million in bribes. Reports indicated that Mr. Decheng collected most of the bribe money. The allegations indicate that between 2002 and 2011, Mr. Tienan took bribes to facilitate project approvals and filings for a number of companies such as Nanshan Group, Ningbo Zhongjin Petrochemical Co Ltd, Guangzhou Automobile Group, Guangzhou Toyota Motor Co Ltd and Zhejiang Hengyi Group. Mr. Tienan also reportedly aided in the approval procedures for several projects from Guangzhou Automobile Group, which in return hired his son as a special Beijing representative for one of the Group’s subsidiaries.

Mr. Tienan could face life imprisonment. However, reports indicated that he is more likely to receive a lesser sentence as a result of his confession.

Reports indicate that Mr. Tienan was fired from the National Development and Reform Commission after Caijing magazine’s deputy editor Luo Changping accused him of corruption, loan fraud and counterfeiting his degree.

Pharmaceutical sector

Last month, GSK was fined $489 million in China for corruption there. Further to the Changsha Intermediate People’s Court in Hunan province’s verdict, GSK’s Chief Executive, Sir Andrew Witty, reportedly said that: “Reaching a conclusion in the investigation of our Chinese business is important, but this has been a deeply disappointing matter for GSK. We have and will continue to learn from this. GSK has been in China for close to a hundred years and we remain fully committed to the country and its people. GSK fully accepts the fact and evidence of the investigation, and the verdict of the Chinese judicial authorities. Furthermore, GSK sincerely apologizes to the Chinese patients, doctors and hospitals and to the Chinese government and the Chinese people. GSK deeply regrets the damage caused.”

In the wake of the Chinese case, other major drugmakers have also been under increased review. It has been reported that Sanofi, the French drugmaker, informed US authorities that it was investigating allegations of employees paying bribes to healthcare professionals in the Middle East and East Africa to persuade them to prescribe its drugs.”

APEC RESOLUTION

At the end of the APEC meeting in Beijing, the APEC members issued the following resolutions about foreign corrupt practices:

“Anti-Corruption

  1. We resolve to strengthen pragmatic anti-corruption cooperation, especially in key areas such as denying safe haven, extraditing or repatriating corrupt officials, enhancing asset recovery efforts, and protecting market order and integrity.
  1. We endorse the Beijing Declaration on Fighting Corruption (Annex H), the APEC Principles on the Prevention of Bribery and Enforcement of Anti-bribery Laws, and the APEC General Elements of Effective Corporate Compliance Programs.
  1. We welcome the establishment of the APEC Network of Anti-Corruption and Law Enforcement Agencies (ACT-NET) with the finalization of its Terms of Reference. We expect to deepen international cooperation, information and intelligence exchange and experience sharing among anticorruption and law enforcement practitioners from APEC member economies through the ACT-NET and other platforms.
  1. We appreciate the efforts of the Anti-Corruption and Transparency Working Group in collaborating with other APEC fora to improve transparency in this region.”

JUSTICE DEPARTMENT SPEECH ON FCPA

On November 19, 2014 Assistant Attorney General Leslie R. Caldwell in the attached speech, DOJ FCPA STATEMENT, spoke about the Foreign Corrupt Practices Act:

“At the Criminal Division, we are stepping up our efforts in the battle against corruption, at home and abroad. . . .

More relevant to this audience, we are also deeply committed to fighting corruption abroad. Now, more than ever, we are bringing to justice individuals and corporations who use foreign bribery as a way to gain a business advantage. In part, we are doing this using the tools and methods that have made our past enforcement efforts so successful – FCPA prosecutions and penalties. . . .

And now we also are prosecuting the bribe takers, using our money laundering and other laws. And, importantly, we have begun stripping corrupt officials of the proceeds of their corruption involving both bribes and kleptocracy, using both criminal and civil authorities. . . .

We also attack corruption at its source – by prosecuting and seizing the assets of the corrupt officials who betray the trust of their people.

Another big change – one that has been building for years but now has really developed momentum – is that we increasingly find ourselves shoulder-to-shoulder with law enforcement and regulatory authorities in other countries. Every day, more countries join in the battle against transnational bribery. And this includes not just our long-time partners, but countries in all corners of the globe.

Together with our foreign law enforcement and regulatory partners we are taking a truly global approach to rooting out international corruption. And make no mistake, this international approach has dramatically advanced our efforts to uncover, punish and deter foreign corruption. . . .

Since 2009, we have convicted more than 50 individuals in FCPA and FCPA-related cases, and resolved criminal cases against more than 50 companies with penalties and forfeiture of approximately $3 billion. Twenty-five of the cases involving individuals have come since 2013 alone. And those are just the cases that are now public. . . .

Fighting corruption is not a choice we have made. It is, increasingly, a global imperative. Given the critical nature of this mission, we are bringing more resources to bear than ever before – and we will continue doing so. We have achieved significant successes using our traditional FCPA enforcement tools. We are building on those successes and continuing to evolve our enforcement efforts. Especially with the power of so many countries now standing by our side, we are determined to use every lawful means available to hold the perpetrators of corruption to account. . . .”

SECURITIES COMPLAINTS

In the attached complaint on October 28, 2014, Dragon State International Inc. filed a class action securities case against Keyuan Petrochemicals, Inc., Chenfeng Tao, and Aichun Li.  KEYUAN PETROCHEMICAL

In the attached complaint, PINGYUAN FISHING, on November 24, 2014, Tyler Warriner fled  a class action securities case against Pingtan Marine Enterprise Ltd., Xinrong Zhou, Roy Yu, Jin Shi, and Xuesong Song.

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

Best regards,

Bill Perry

US CHINA TRADE WAR-DEVELOPMENTS IN TRADE, TRADE ADJUSTMENT ASSISTANCE, CUSTOMS, IP/337, ANTITRUST AND SECURITIES

Jinshang Park from Forbidden City Yellow Roofs Gugong Palace Bei“TRADE IS A TWO WAY STREET”

“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”

PRESIDENT RONALD REAGAN, JUNE 28, 1986

US CHINA TRADE WAR NEWSLETTER OCTOBER 16, 2014

Dear Friends,

There have been major developments in the trade, trade adjustment assistance, Trade Agreements, Customs, 337/IP, US/Chinese antitrust, and securities areas.

TRADE PROTECTIONISM INCLUDING UNFAIR TRADE CASES DO NOT WORK

The problem with trade protectionism, including “unfair” antidumping and countervailing duty cases, is they do not work. Antidumping and countervailing duty cases do not accomplish their objective of protecting the US industry from “unfair” imports.

Note the quotes around unfair, because in the context of China, since the United States refuses to use actual prices and costs in China to determine whether Chinese companies are dumping, the US government simply does not know whether the Chinese companies are dumping.  Instead for the last 30 years Commerce has used Alice in Wonderland surrogate values from surrogate countries that have no relationship with economic reality in China to construct the “cost” of production in China.

With regard to accomplishing its objective of protecting the domestic industry, however, as stated in my January newsletter, on June 28, 1986 in his attached speech from his Santa Barbara ranch, BETTER COPY REAGAN IT SPEECH, President Ronald Reagan realized the simple point that trade restrictions, including unfair trade cases, do not work. As President Reagan stated:

“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.

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

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

Emphasis added.

President Reagan understood the inherent dangers of trade protectionism. As Winston Churchill stated, those who do not learn from history are doomed to repeat it.

A 21st TRADE ADJUSTMENT ASSITANCE PROGRAM—A MODEST PROPOSAL

While in Washington DC two weeks ago to discuss the Trade Adjustment Assistance for Firms program, I was told by senior aides in a position to know that Unions no longer favor trade adjustment assistance (“TAA”) and instead oppose the new trade agreements, including the Trans Pacific Partnership and Trans-Atlantic (TA)/ the Transatlantic Trade and Investment Partnership. As the senior aide also mentioned to me, in all likelihood, TPP and TTIP will go through eventually, but the Trade Adjustment Assistance Programs may die.

As readers of this newsletter know, I am on the Board of Directors of the Northwest Trade Adjustment Assistance (“NWTAAC”). We provide trade adjustment assistance to companies that have been injured by imports.

As mentioned in previous newsletters, the Trade Adjustment for Firms (“TAAF”) program is the only Trade Program that works. In my over thirty years of experience in the international trade area, first in the US Government and later defending US importers and end user companies in antidumping cases, there is one overarching lesson that I have learned–protectionism simply does not work. US industries that cannot compete in global markets cannot run from global competition by bringing trade cases.

These cases simply fail to protect the domestic industry from import competition. In response to antidumping orders, Chinese furniture and tissue paper companies have moved to Vietnam, where labor rates are LOWER than China. While in private practice and later at the International Trade Commission (“ITC”) and Commerce Department, I watched Bethlehem Steel bring more than a hundred antidumping and countervailing duty cases against steel imports from various countries, receiving protection, in effect, from imports for more than 30 years. Where is Bethlehem Steel today? Green fields. When faced with import competition, it is simply too difficult to bring antidumping cases against all the countries in the world, which have lower priced production than the US.

With regards to trade adjustment assistance, however, there are two programs. The major trade adjustment assistance is the $1 billion program for employees/workers that have been injured by imports and the smaller $16 million TAAF program.   TAAF happened as an adjunct to TAA for Workers.

Congress started the TAA adjustment assistance programs in 1962 as part of the Trade Expansion Act and as a means of securing support for the Kennedy Round of multilateral trade negotiations. Trade Adjustment Assistance essentially was a tradeoff. If Unions and Workers would support trade liberalization, including free trade agreements, workers would be compensated because of the disruption caused by increased imports.

Many free market Republican types attack the TAA for workers as simply another entitlement that does not need to be paid and can be covered by other programs. In the early 1980s, President Reagan himself put in requirements to set up standards so that Trade Adjustment Assistance for Workers would not simply be an open ended entitlement.

But my belief is that President Reagan indirectly approved the Trade Adjustment Assistance Program for Firms/Companies. Why? Jim Munn.

As stated in the attached 2002 obituary, JIM MUNN, Jim Munn was a famous criminal lawyer in Seattle and an early supporter and personal friend of Ronald Reagan. When I started to get involved in the Northwest Trade Adjustment Assistance Center, I was told that the Center was in place because President Reagan himself asked Jim Munn to look into the program.

Both President Reagan and Jim Munn were firmly opposed to government interference in the marketplace. What did Jim Munn discover when he looked into the Trade Adjustment Assistance Program for Companies? It works. Jim Munn decided to head up NWTAAC for the next 22 years.

In the Workers program, TAA is provided at the state and local levels but overseen by the US Department of Labor. The reemployment services provided include counseling, resume-writing, job-search and referral assistance, travel costs for job searches, relocation allowance, training, income support while the worker is in training and a health coverage tax credit. Although the actual amount paid can be much less, the training itself is up to $22,500 per person, almost the amount given to each company. The rationale is that if an employee loses a job in trade impacted industry, the jobs in the industry are fewer and, therefore, the worker will need to be trained to do something else.

One question, however, is why the Unions do not want the TAA and simply want to oppose the trade agreements? One reason could be that TAA is after the workers have lost their jobs and the training may be for jobs that do not exist.

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

Total cost to the US Taxpayer for this nationwide program is $16 million dollars—truthfully peanuts in the Federal budget. Moreover, the Federal government saves money because if the company is saved, the jobs are saved and there are fewer workers to retrain and the saved company and workers end up paying taxes at all levels of government rather than being a drain on the Treasury.

The success of TAA for Firms is based on the fact that it focuses on the U.S. manufacturers, service companies and agricultural producing firms individually. The recovery strategy is custom-made for each firm. Once this strategy is approved by the Commerce Department, experts are hired to implement the strategy. The only interaction the program has with the imports is to verify that imports are “contributing importantly” to the sales and employment decline of the U.S. company.

Moreover, in contrast to other economic assistance programs, TAA for Firms is a long term assistance program, which monitors the companies and makes sure that the company succeeds in completing its trade adjustment assistance program that it has agreed to do. TAAF is focused on helping small and medium size enterprises as the support provided to the companies is only $75,000, which must be matched by the companies.

Although at first glance, free market advocates would not support this program, TAA for Firms works. We have published a cost/benefit analysis, which shows that nearly 80 percent of the firms it has assisted since 1984 are still in business. That is eight out of ten companies saved.

In the recent annual Commerce report on TAAF, which is posted on my blog, it is reported that all US companies that joined the program in 2011 were alive in 2013. If the company can be saved then most of the jobs at that company can be saved. In fact, the attached chart, shows that after entering the program, jobs have increased at the companies. TAAF Change in Employment 2009-13

One reason that TAAF may succeed so well is that small and medium enterprise often have a knowledge gap. Although the companies may hire consultants, many enterprises do not undertake the projects that change the essential economic circumstances of the business, such as lean manufacturing, quality system certification, new product development, or strategic marketing overhaul.

Most managers are not looking for solutions until there is a problem. For a small and medium enterprise, trade impact is one of those problems that require a solution. That solution will in nearly all cases entail outside expertise.

In a sense, TAAF is “retraining the company” so it never has to lose jobs, rather than waiting for the layoffs and retraining the individuals. This works because when companies lose out to trade, it’s like a tsunami hits them. Everything changes. Things the company thought they knew about their product, how to make it, and how to sell it, are no longer true. What they need is the knowledge and innovation to succeed in these new circumstances. That knowledge and innovation comes from the Center Staff and outside expertise – consultants and contractors. For each company, the Staff of the Trade Adjustment Assistance Center analyzes the needs of the firm, prepares a recovery strategy, facilitates the hiring of the outside consultant and then monitors the projects until completion. If the companies get to the right place in terms of product and market, they no longer have to lose out to imports. Instead they grow.

Trade Adjustment Assistance for Firms (TAAF) specifically targets these circumstances. TAAF is based on the recognition that trade impact leads to a knowledge gap in individual firms that is cured by innovation implemented through outside expertise.

TAAF offers qualified trade impacted firms a matching fund for outside expertise. It is a substantial fund, available over a long term, and highly flexible to meet the unique requirements of diverse firms. The cost of outside expertise would normally come as an exceptional operating expense, in other words, it would come from profit. But for a trade impacted small and medium enterprise that may be losing sales under severe price competition, profit is often in short supply.

TAAF offers access to the critical resource, outside expertise, at a time when the firm needs it the most and would be least prepared to acquire it. The exceptional results of the TAAF program all derive from this connection: trade disruption equals knowledge gap; knowledge gap overcome by innovation; innovation implemented through outside expertise, outside expertise enabled by TAAF. To learn more about the TAAF program, please see the website of NWTAAC, http://www.nwtaac.org.

TAA for workers/employees looks for the businesses that are laying off people and gets those people into a service stream. The idea is that imports increased, some people lost jobs, so retrain those people or get them into some other job situation.

In the alternative, TAAF looks for those businesses that are beginning to lose out in a trade impacted market and then works with those businesses to make them stronger so that they do not have to lay off people anymore, and, as happens in most cases, actually add jobs in time.

In talking with Republicans, although thinking that TAA for workers is simply another entitlement, when the TAAF program is described, they are much more interested.

But that brings us to the present problem. We have two TAA programs that are completely separate. One is the $1 billion program to retrain workers with applications made to the Department of Labor, and the other program is the TAAF program with applications made to Commerce Department. There is little interaction between the two programs and little is done by Commerce and Labor to facilitate such communication.

In the TAA for Workers program, because the companies have the data needed to approve the application, the Labor Department tells the companies that they need to provide data in a relatively short time to the Labor Department under threat of subpoena. Similar data is provided to the Commerce Department in the TAAF program, but the company is given weeks to submit the data.

To move the Trade Agreements forward, TAA for workers and TAA for firms need to be reworked and readjusted to make sure that the programs accomplish the objective of saving the jobs and the companies that are hurt by trade liberalization. There needs to be more coordination between the two programs.

One way to adjust the programs is put the TAA for Companies program first and give it more funding so it can help larger companies, such as Steel Companies, where more jobs are located. TAA for Companies could be used to create a program where the best of technologies and advisory services could be brought to bear to help US companies challenged by globalization and trade liberalization. The Worker program then comes afterwards, after the jobs have been lost. Data that is needed for the Worker program can be supplied as part of the Company program.

One interesting point is that when the Korean government examined the US Trade Adjustment Assistance programs, that government decided not to have a workers program, only a company program, to save the jobs before they are lost.

Legislators may ask where should the money to fund these programs come from? Every year the US government collects more than $1 billion in antidumping and countervailing duties. Although the WTO has determined that the antidumping and countervailing duties cannot be given to Petitioning companies that have filed for antidumping and countervailing duties, those duties could be used to help all companies and workers hurt by imports. The WTO allows countries to provide money to companies to adjust to import competition.

Congress needs to create a 21st Trade Adjustment Assistance Program so that support for the new trade agreements can be generated in the broad population. As indicated below, the TPP alone is predicted to increase economic activity by $1 trillion. With such a huge benefit, trade agreements will eventually go through and the question now is how can the US government help workers and companies adjust to the new competitive marketplace?

WHY MARKET ECONOMY IN ANTIDUMPING CASES AGAINST CHINA IS SO IMPORTANT FOR US IMPORTERS, US END USER PRODUCERS AND CHINESE COMPANIES

As stated in numerous past newsletters, market economy for China is important in antidumping cases because the Commerce Department has substantial discretion to pick surrogate values. As mentioned many times before, in contrast to Japan, Korea, Indonesia, India, Iran and almost every other country in the World, because China is not considered a market economy country in antidumping cases Commerce refuses to look at actual prices and costs in China to determine dumping. Instead Commerce takes consumption factors from the Chinese producer for all inputs used to produce the product in question, including raw materials, energy, and labor, and then goes to a Third Country to get values often from Import Statistics in third surrogate countries to value those consumption factors.  Commerce then constructs a “cost” for the Chinese company, which often has no relationship to the actual reality in China.

In the past Commerce looked for surrogate values in only one country, India, but now Commerce looks at numerous countries, including Indonesia, Thailand, Philippines, Bulgaria, Columbia, and Ukraine to name a few and uses import values in those countries to consctruct the cost.  Those import values and the surrogate country itself can change from annual review investigation to annual review investigation.

Thus, it is impossible for the Chinese company to know whether it is dumping because it cannot know which surrogate country and which surrogate value that Commerce will pick to value the consumption factors.  Since it is impossible for the Chinese company to know whether it is dumping, the US importer cannot know whether the Chinese company is dumping.

This is very important because as of February 2014, there were 121 Antidumping and Countervailing Duty orders. 75 of those orders are for raw material products, such as metals, chemicals and steel, which go into downstream US production.

This point was recently reinforced by a Court of Appeals for the Federal Circuit (“CAFC”) decision in the Garlic from China antidumping case. On September 10, 2014, in the attached Qingdao Sea-Line Trade Co., Ltd. v. United States, in affirming the Commerce Department’s determination in the Garlic case, CAFC OPINION GARLIC WHY MARKET ECONOMY SO IMPORTANT FROM CHINA, the CAFC stated:

“In an administrative review of a non-market economy, Commerce is required to calculate surrogate values for the subject merchandise using the “best available information.” 19 U.S.C. § 1677b(c)(1). Commerce has broad discretion to determine what constitutes the best available information, as this term is not defined by statute. Commerce generally selects, to the extent practicable, surrogate values that are publicly available, are product specific, reflect a broad market average, and are contemporaneous . . .

We also hold that Commerce may change its conclusions from one review to the next based on new information and arguments, as long as it does not act arbitrarily and it articulates a reasonable basis for the change. Indeed, the Trade Court has recognized that each administrative review is a separate exercise of Commerce’s authority that allows for different conclusions based on different facts in the record.”

Emphasis added.

Thus, the Commerce Department has broad discretion to determine surrogate countries and values and their choices can change from annual review investigation to annual review investigation, exposing US importers to millions of dollars in retroactive liability based on a process, which is inherently arbitrary, because Commerce does not look at actual prices and costs in China. Not only is there a problem with retroactive liability for US importers, US end user companies are often blocked from using the competitive Chinese raw material input, which, in turn, exposes the US downstream producers, such as foundries, automobile and chemical producers, to competition from Chinese companies and foreign companies that do have access to the lower cost raw materials.

Just like a toothpaste tube, when you squeeze to help one producer, you often hurt the downstream US producer. In other words, the US antidumping and countervailing duty laws, rob Peter to pay Paul.

IMPORT ALLIANCE FOR AMERICA

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

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

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

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

Congressmen have agreed to meet importers to listen to their grievances regarding the US antidumping and countervailing duty laws. In addition to contacting US importers, we are now contacting many Chinese companies to ask them to contact their US import companies to see if they are interested in participating in the Alliance.

At the present time, Commerce takes the position that it will not make China a market economy country in 2016 as required by the WTO Accession Agreement because the 15 years is in a treaty and not in the US antidumping and countervailing duty law. Changes to the US antidumping and countervailing duty law against China can only happen because of a push by US importers and end user companies. In US politics, only squeaky wheels get the grease.

On August 7, 2014, we held an organizational meeting in Beijing, China at the headquarters of China Ocean Shipping Company (“COSCO”) with interested Chambers of Commerce and Chinese companies to explain the project in more detail and to seek help in contacting US importers about the Alliance.

We spoke to about 40 attendees, including attendees from the legal departments of the top 10 chambers of commerce, including Chemicals, Machinery and Electronics, Light Industrial Products, and Food, and the Steel, Wood Products and Hydraulics and Pneumatics & Seals Association.

In addition to describing the Import Alliance and the issues regarding 2016 in the US China Accession Agreement, we also discussed the US China Trade War in general. Introductory videos for the Organizational Meeting from Cal Scott of Polder Inc., the President of the Import Alliance, can be found at the following link https://vimeo.com/103556227 and for former Congressmen Don Bonker and Cliff Stearns of APCO can be found at the following link https://vimeo.com/103556226. The PowerPoint we used to describe the Import Alliance, the specific provisions in the US China WTO Agreement and the Trade War is attached.FINAL BEIJING IMPORT ALLIANCE POWERPOINT

TRADE

SOLAR CASES—POSSIBLE SETTLEMENT??—CORRECTION

POSSIBLE SCOPE EXPANSION TO INCLUDE PANELS PRODUCED IN CHINA AND TAIWAN FROM THIRD COUNTRY SOLAR CELLS

On June 3, 2014, Commerce issued its preliminary countervailing duty determination against China in the Solar Products case. The fact sheet and preliminary Federal Register notice have been posted on my blog. The Countervailing Duty Rates range from 18.56% for Trina to 35.21% for Wuxi Suntech and all other Chinese companies getting 26.89%.

On July 25th, the Commerce Department announced its preliminary antidumping determination in the Chinese solar products case establishing 47.27% combined rates (20.38% Antidumping, 26.89% Countervailing Duty) wiping out billions of dollars in imports of Chinese solar products into the United States.

Posted on my blog are the Commerce Department’s Factsheet, Federal Register notice, Issues and Decision memo from the Antidumping Preliminary Determination along with Commerce instructions to Customs in the Solar Products Antidumping and Countervailing Duty cases, which will help importers understand what products are covered by this case. Also attached is the ITC scheduling notice for its final injury investigation in the Solar Products case. The ITC hearing is scheduled for December 8, 2014.

On August 15th, after an extension, the Chinese government filed a letter at Commerce, which is posted on my blog, expressing an interest in a suspension agreement, but no proposed formal agreement has been filed with the Department.

On the possibility of a suspension agreement in the New Solar Products case or a comprehensive agreement settling all the cases, however, there are indications of ongoing negotiations between the US and Chinese governments.  After being corrected, I checked the law again and the Commerce Department does not need consent from Solar World to go forward with a Suspension Agreement.  But they do need to consult with Solar World. There is no indication that Solar World has been consulted. Commerce is also required to issue a Federal Register notice requesting comments on an Agreement, but nothing so far.

Very recently, however, there have been indications that negotiations are ongoing between the US and Chinese governments in the Solar cases. The talks are confidential and Commerce has refused to even say whether it received a proposal from China for a suspension agreement.

But sources have reported that the two sides have had several meetings since August, when China said it was interested in negotiating a settlement in a public filing. This source said the frequency of these meetings provides at least some indication that there may be movement to finally resolve the solar trade cases.

But there is little time left to conclude an Agreement so the Solar Products case in all probability will go to final determination. Antidumping and countervailing duty orders will probably be issued and could be in place for 5 to 30 years. Chinese companies and US importers will simply then try and get around the situation by setting up production in third countries.

As a result of the Solar cases and the corresponding Polysilicon antidumping and countervailing duty case brought by the Chinese government against the United States, Washington State officials have told me that REC Silicon, which has the largest polysilicon production facility here in Moses Lake, Washington, is about to set up a joint venture in China to produce polysilicon in that country.

Meanwhile, the case moves on and expands.

In the attached October 3, 2014 memo, DOC MEMO, on its own motion Commerce has proposed to expand the scope of the Solar Products case to cover all panels produced in Taiwan and China from third country solar cells. As Commerce states in the October 3, 2014 memo, which will be posted on my blog:

“Interested parties have submitted comments on the scopes of the above-referenced antidumping duty (AD) and countervailing duty (CVD) investigations, including certain concerns about the scope’s administrability and enforcement. In response, the Department is considering the possibility of the scope clarification described below and is providing interested parties with an opportunity to submit comments. Currently, the scopes of the AD and CVD investigations of certain crystalline silicon photovoltaic products from the People’s Republic of China (PRC) and the scope of the AD investigation of certain crystalline silicon photovoltaic products from Taiwan contain the following language:

“For purposes of this investigation, subject merchandise includes modules, laminates and/or panels assembled in the subject country consisting of crystalline silicon photovoltaic cells that are completed or partially manufactured within a customs territory other than that subject country, using ingots that are manufactured in the subject country, wafers that are manufactured in the subject country, or cells where the manufacturing process begins in the subject country and is completed in a non-subject country.”

Specifically, we are considering a scope clarification that would make the following points:

For the PRC investigations, subject merchandise includes all modules, laminates and/or panels assembled in the PRC that contain crystalline silicon photovoltaic cells produced in a customs territory other than the PRC.

For the Taiwan investigation, subject merchandise includes all modules, laminates and/or panels assembled in Taiwan consisting of crystalline silicon photovoltaic cells produced in Taiwan or a customs territory other than Taiwan. In addition, subject merchandise will include modules, laminates, and panels assembled in a third- country, other than the PRC, consisting of crystalline silicon photovoltaic cells produced in Taiwan.”

Today October 16, 2014, on behalf of two importers that import solar panels with third country solar cells in it, we filed a brief to argue that a change this late in the Solar Products investigation expanding the products subject to investigation violates due process because of the lack of notice to US importers and Chinese exporter and producers.  The problem with changing the scope this late in the antidumping and countervailing investigation is that Commerce Department’s record is now closed and those Chinese companies that export solar panels with third country solar cells in them along with the US companies that import those products have no opportunity to prove that the Chinese companies are separate and independent from the Chinese goverment.  The Chinese companies, therefore, will automatically get an antidumping rate of 167%.

Moveover, the entire antidumping and countervailing duty proceeding at Commerce as well as the injury investigation at the US International Trade Commission (“ITC”) are based on the presmise that the products covered by this investigation are solely those solar panels that have solar cells wholly or partially produced in the subject countries, Taiwan or China.  If Commerce accepts the proposal, that will no longer the case.  The Solar Products cases will cover solar panels with third country solar cells in them when there is no specific determination at the Commerce Department that those solar panels with third country solar cells, in fact, were dumped or that the Chinese  companies producing those panels received subsidies and no determination at the ITC that the solar panels with third country solar cells in them caused injury to the US industy.

One reason that Commerce may have decided to expand the scope is because the AD and CVD orders will be difficult to administer and enforce. It will be difficult for Customs officials at the border to determine where the components of a solar cell in a particular panel from China or Taiwan originated.  But that is a problem with the scope in Solar World’s initial petition that it filed in this case.  Substantially changing the game at this stage in the proceedings raises enormous due process questions in this proceeding.

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

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

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

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

To summarize, on January 9, 2014, the Bipartisan Congressional Trade Priorities Act of 2014, which is posted on this blog in the February post was introduced into Congress. The TPA bill gives the Administration, USTR and the President, Trade Promotion Authority or Fast Track Authority so that if and when USTR negotiates a trade deal in the TPP or the Trans-Atlantic negotiations, the Agreement will get an up or down vote in the US Congress with no amendments.

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

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

On April 9, 2014, the new Senate Finance Committee Chairman Senator Ron Wyden announced at a speech to the American Apparel & Footwear Association Conference that he was introducing a new TPA bill, what Senator Wyden calls Smart Track. But to date no details have been given about exactly what Smart Track will mean, other than more oversight by Congress and input by the Public in the trade negotiations.

On July 17th, all Republican members of the House Ways and Means Committee sent a letter to USTR Froman, which is posted on my blog, urging the Administration to build support for Trade Promotion Authority (TPA) and directing the Administration not to complete the Trans-Pacific Partnership (TPP) before TPA is enacted into law.

Recently, former USTR Ron Kirk in an opinion piece urged the negotiators to conclude an agreement without approval of the TPA. In discussing the situation with senior Republican aides in the US Congress, it was made clear that without TPA no TPP can be concluded. When asked about the Kirk statement, the response of one Republican aide recently was “I hope we are over that point.”

Now the story continues . . . .

On September 5th, it was reported that a coalition of unions and advocacy groups called on U.S. Trade Representative Michael Froman to make sure that public health programs are immune to challenges from powerful pharmaceutical firms under U.S. trade deals. The AFL-CIO, Center on Budget and Policy Priorities, AARP and other groups in a letter to Froman, said that if an investor-state dispute settlement mechanism — or ISDS — is included in the Trans-Pacific Partnership and the Transatlantic Trade and Investment Partnership, it must contain a shield for Medicare, Medicaid and other government health initiatives. The groups fear that pharmaceutical companies could use the ISDS system to challenge regulations that state legislatures, Congress or administrative agencies use to manage drug costs in public programs.

On September 8th, it was reported that pork producers in seven countries put pressure on negotiators meeting in Vietnam for a session of Trans-Pacific Partnership negotiations to resist a Japanese government proposal that would exempt certain sensitive food products from tariff cuts in the deal. Organizations representing hog farmers in the U.S., Canada, Australia, Mexico and Chile circulated an open letter to negotiators reiterating that full tariff elimination is a core principle of the TPP and that Japan’s “unacceptable” proposal to carve out pork and other food products from tariff cuts would undermine the credibility of the deal now and in the future stating:

“A broad exemption for Japan will encourage other TPP countries to withhold market access concessions, backtrack on current offers, lower the ambition on rules language and possibly unravel the entire agreement. Additionally, it would set a dangerous precedent for the expansion of the TPP when other nations are likely to demand a Japan-type deal.

“We call on each of our governments to redouble their efforts to move Japan away from this untenable position. If Japan is unwilling to open its markets fully to our products, it should exit the negotiations so that the other nations can expeditiously conclude the negotiations.”

On September 10th, it was reported that the latest session of the TPP talks in Hanoi had wrapped up with officials reporting progress on the agreement’s chapters covering intellectual property, state-owned enterprises and labor as the TPP negotiators work to deliver a substantial outcome in time for a closely watched November 10-11 APEC summit in Beijing. Assistant USTR Barbara Weisel stated:

“We have committed to a focused work plan, which will allow us to boost momentum and make continued progress. All countries involved want to reach a conclusion to unlock the enormous opportunity TPP represents.”

Canadian and Vietnamese government officials issued similar statements.

Scheduling is significant as the 12 TPP nations are quickly approaching the November 10-11 summit of the Asia-Pacific Economic Cooperation in Beijing, which President Barack Obama and others have indicated as a deadline for the partners to conclude the talks or at the very least announce a significant breakthrough on the major differences.

On September 29th, House Democratic Whip Steny Hoyer (Md.) stated that he did not expect Congress to hold debate in the upcoming post-election lame-duck session on whether to give the White House the authority to expedite international trade pacts. At an appearance at the National Press Club, Hoyer stated that he did not see enough support to bring trade promotion authority, or TPA, to the House floor.

Although some House Republicans had expressed interest in trying to move TPA during the lame duck session, when the political fallout from opponents would be less, Hoyer stated:

“I don’t think right now there is the consensus, in either party, to bring that forward. I doubt seriously, as I said, that we’re going consider trade legislation.”

On September 25, 2014, it was reported that top Japanese and US trade officials had closed a two day meeting in Washington DC without resolving any key differences regarding agriculture or automobiles in the TPP Talks. A meeting between U.S. Trade Representative Michael Froman and Japanese TPP czar Akira Amari resulted only in a brief statement from the U.S. side saying that the nations’ key differences still remain.

The USTR stated, that “While there were constructive working level discussions over the weekend, we were unable to make further progress on the key outstanding issues.” The failure of Froman and Amari to bridge the considerable gaps on food and automotive trade remains a significant barrier to the likelihood of a significant outcome in the broader 12-nation TPP talks in time for an Asia-Pacific summit in November 10-11 in Beijing, China.

On October 1, 2104, the House of Representatives Ways and Means Committee circulated the attached e-mail, WAYS AND MEANS WASH POST, with an editorial from the Washington Post on the Trans Pacific Partnership and the need to reinvigorate the process. The House Ways and Means e-mail states:

“Momentum for the Trans-Pacific Partnership Needs to be Revived

By The Editorial Board

The Trans-Pacific Partnership is a proposed free-trade agreement that will knit the United States and 11 nations of South America, North America and Asia more closely together, while providing a geopolitical counterweight to a rising China. The pact would be especially valuable because Japan is willing to join, which would require a long-overdue opening and restructuring of its protected but lackluster economy. Indeed, without Japan, the world’s third-largest economy, the TPP loses much of its strategic significance.

So it was disappointing to learn that a Sept. 24 meeting between American and Japanese trade negotiators in Washington broke up after only an hour over the same old issue, Japanese resistance to U.S. farm exports that has plagued the two nations’ dealings for decades. The Japanese departed without touching a sandwich buffet that had been laid out in anticipation of an extended working session, according to the Wall Street Journal.

This is only the latest troubling development for the centerpiece of what was once meant to be President Obama’s foreign policy “pivot” to Asia.  As 2014 began, Japanese Prime Minister Shinzo Abe was promising to join the U.S.-led free-trade agreement as a spur to his own structural economic reforms. A bipartisan, bicameral group of senior U.S. lawmakers had agreed on a plan for “fast track” legislative authority to expedite a congressional vote on the TPP, once the 12 would-be members hammered out a final deal. Bucking resistance from trade skeptics in his own party, Mr. Obama had offered a friendly reference to that proposal in his State of the Union address on Jan. 28.

But Mr. Obama’s call was received coolly by Senate Majority Leader Harry Reid (D-Nev.) and by key Democratic constituencies such as organized labor. Foreign crises in the Middle East and Ukraine occupied the White House and Congress. Two champions of the bipartisan trade promotion measure, Sen. Max Baucus (D-Mont.) and Rep. Dave Camp (R-Mich.), retired or planned to retire from Congress.

For all of Mr. Abe’s talk of bold steps and confronting special interests in Japan, his negotiators have not yet backed up the prime minister’s talk with concrete proposals, even though the prime minister has said repeatedly that opening agricultural markets is in Japan’s interest. The upshot is that momentum behind the TPP seems to be flagging and the administration’s goal of a tentative agreement by the end of 2014 is looking less feasible.

Vice President Biden tried to patch things up with Mr. Abe in a meeting on Friday, which produced a boilerplate pledge to seek an agreement. It will take more than that to revive the momentum for the TPP and close a deal. Back home, Mr. Abe needs to keep the pressure on special interests. Congress could reciprocate by moving ahead promptly with fast-track authority during the post-election lame-duck period — which will take political courage on its part, too.”

On October 2, 2014, it was reported that the Australian Government has agreed to host a meeting of the TPP trade ministers at the end of October to deal with the outstanding issues regarding intellectual property, agricultural market access, state-owned enterprises and other areas as negotiators race to close major parts of the pact by year’s end. The three day meeting will start in Sydney being Oct. 25, with the hope that the 12 TPP partners can seal the “basic elements of the agreement” before the end of the year.

But the differences with Japan and the lack of Trade Promotion Authority are two big issues that need to be addressed by the US Government. Without these two issues being resolved the chance of any big breakthroughs is small. These two problems would appear to prevent a final deal at the November APEC meeting, which has been an objective of the Obama Administration.

TTIP—FREE TRADE AGREEEMENT WITH EU

Meanwhile, trade negotiators for the US and the European Union announced on Friday, October 3rd that the seventh round of Transatlantic Trade and Investment Partnership had wrapped up with reports of steady progress on chapters covering trade in services as well as regulations covering automobiles, chemicals and food safety. Assistant U.S. Trade Representative Dan Mullaney, the lead U.S. TTIP negotiator, stated:

“As this painstaking work of building a foundation for an agreement is completed, we will need to make a high-level push to achieve the comprehensive and ambitious results that we are now working to support. That will require a shared commitment at the highest levels on both sides of the Atlantic to move forward quickly.”

INDIA STILL KILLS WTO TRADE FACILITATION AGREEMENT NEGOTIATED IN BALI

On July 31st, the WTO announced that the Trade Facilitation Agreement negotiated in Bali would not be implemented on schedule because of the substantial opposition from developing nations led by India as a result of food security initiatives.

On September 22, 2014, Director General Roberto Azevedo of the WTO warned that a deadlock on the multilateral body’s implementation of a modest trade-facilitation agreement could impose a “freezing effect” on the WTO’s work in other areas. The Director General stated:

“Many areas of our work may suffer a freezing effect, including the areas of greatest interest to developing countries, such as agriculture. All negotiations mandated in Bali, such as the one to find a permanent solution for the issue of public stockholding for food security purposes, may never even happen if members fail to implement each and every part of the Bali Package, including the trade facilitation agreement.”

Azevedo restated what he has said in the past that India and the developing countries’ concerns on food security have been addressed in the Bali package, which extended a “safe harbor” period prohibiting challenges against the controversial programs while committing to hold talks to find a permanent fix.

Azevedo stated:

“Failing to agree on new rules for twenty years is a very disturbing record. Considerably graver than that is not being able to implement what has been finally agreed only a few months earlier. The question that WTO members are trying to answer is not whether members can ensure their food security but rather under which commonly agreed disciplines they can implement policies to achieve this goal without further distorting trade or aggravating the food insecurity of third countries.”

On September 30th, however, in his first meeting with President Obama, Indian Prime Minister Narendra Modi on Tuesday reaffirmed his government’s position in the ongoing fight to implement a World Trade Organization trade facilitation pact, linking his support for the deal to action on food security issues. Modi made clear that India is not backing down from the push to shield its food security programs from legal challenges, which led the WTO to miss the July 31 deadline to implement the Trade Facilitation Agreement.

After the meeting with President Obama, Modi tweeted that “We had an open discussion on WTO issue. We support trade facilitation, but a solution that takes care of our food security must be found.” Speaking to reporters through a translator alongside Obama, Modi also said he believed it would be possible to resolve the impasse “soon.”

On September 29th, the WTO cited little progress following a Sept (PCTF) meeting, nearly two months after the advance the trade facilitation plan over concerns related to India’s food safety demands.

On October 1st, at the WTO’s 2014 public forum, United Nations Secretary General Ban Ki-moon urged the World Trade Organization to overcome its internal fights and reach a deal on new global trade rules, including the Trade Facilitation Agreement, warning that the rise of regional trade pacts could undermine the WTO and leave developing nations way behind. Secretary General Ban said that the WTO’s mission to eliminate trade barriers is a key driver of the UN’s own initiatives to promote global development. He called for a renewed commitment to the long-stalled Doha round of trade negotiations. Ban said:

“Trade can — and should — benefit everyone. That is why the international community needs to avoid protectionism. We need an open, fair, rules-based and development-oriented international trading regime in the spirit of the Doha Development Round.”

WTO Director-General Roberto Azevedo also spoke at the forum:

“Trade has become a matter of headlines and high politics once again.  Now, more than ever, our work here has the potential to touch the lives of almost everyone on this planet.”

TIRES FROM CHINA ANTIDUMPING AND COUNTERVAILING DUTY CASE

Led by Senator Kay Hagan of North Carolina, 31 Democratic US Senators wrote the attached letter, 31 DEMOCRATIC SENATORS BACK TIRES CASE, to Secretary Penny Pritzker of the Commerce Department in support of the Tires case from China. The 31 Senators stated:

“We are writing in strong support of the Department’s decision to initiate antidumping and countervailing duty investigations of passenger vehicle and light truck tires from China.

As you well know, China has targeted the passenger vehicle and light truck tire sector for development and there are several hundred tire manufacturing facilities now operating in that country. In 2009, the United Steelworkers (USW) filed a Section 421 petition seeking relief from a flood of similar tires from China that were injuring our producers and their workers. That petition was successful and the relief that was provided helped to restore market conditions. Employment stabilized and companies producing here invested billions of dollars in new plant and equipment.

Unfortunately, shortly after relief expired, imports of these tires from China once again skyrocketed. Since the Section 421 relief ended in 2012, imports from China have roughly doubled. In response, on June 3, 2014, the United Steelworkers (USW) filed petitions with the Department alleging dumping and subsidies. The Steelworkers’ petitions identified dumping margins as high as 87.99 percent and provided sufficient information for the Department to initiate an investigation on 39 separate subsidies available to tire producers in China.

Our laws need to be fairly and faithfully enforced to ensure that workers – our constituents – can be confident that, when they work hard and play by the rules, their government will stand by their side to fight foreign predatory trade practices. Thousands of workers across the country are employed in this sector, making the best tires available.

America’s laws against unfair trade are a critical underpinning of our economic policies and economic prosperity. Given the chance, American workers can out-compete anyone. But, in the face of China’s continual targeting of our manufacturing base, we need to make sure that we act quickly and enforce our laws. That is what we are asking and urge you and your Department carefully analyze the facts and act to restore fair conditions for trade.”

Senator Kay Hagan of North Carolina is in a tough reelection fight, which led to her effort to support her constituent, the Union and the Goodyear plant in Fayetteville, North Carolina.

TOUGHER TRADE LAWS??

On Wednesday October 1, 2014, in the attached press release, BROWN, Democratic U.S. Senator Sherrod Brown of Ohio announced at Byer Steel Group, a US rebar producer, in Cincinnati new legislation that would help level the playing field for American manufacturers by strengthening the ability of the U.S. to crack down on unfair foreign competition resulting from violations of trade law. Senator Brown stated:

“As American manufacturing continues its steady comeback, it is critical that we fully enforce our trade laws to ensure that American companies – like Byer Steel – can compete on a level playing field. That’s why the Leveling the Playing Field Act is so important. We must fight back against foreign companies’ efforts to weaken our trade laws and exploit loopholes. And that’s exactly what the Leveling the Playing Field Act does. I look forward to working with my colleagues in a bipartisan fashion to get this bill passed.”

ALUMINUM EXTRUSIONS

CIRCUMVENTION OF ALUMINUM EXTRUSIONS ORDER??

As a follow up to the May 8th letter by Senator Mitch McConnell reported in my last newsletter, on August 14th, Senator Orrin Hatch sent the attached letter, HATCH LETTER ALUMINUM, to Paul Piquado, Assistant Secretary for Enforcement & Compliance, at the Commerce Department, expressing his concerns of circumvention of the antidumping and countervailing duty orders on Aluminum Extrusions. In the letter, Senator Hatch stated:

“Futura Industries and its 327 employees based in Clearfield, Utah is among the U.S. companies affected by the Chinese products found to be dumped and subsidized. I understand that the Department is currently conducting two scope inquiries related to imports of 5000-series alloy aluminum extrusions in place of the 6000-series alloy aluminum extrusions to which the orders apply. I urge you to apply all applicable laws and regulations in making the Department’s scope rulings.”

On August 19th, Congressman Sessions sent a similar attached letter, SESSIONS LTR, to Assistant Secretary Paul Piquado on behalf of his constituent Texas Western Extrusions Corporation and its 700 employees expressing deep concern by recent reports of unfair trade practices from China in exporting the 5000-series alloy aluminum extrusions that once again are “threatening Texas jobs.

On September 8, 2014, it was reported that numerous members of Congress have urged the U.S. Department of Commerce to rule that the so-called “5000 series” of extrusions currently being shipped into the U.S. should be covered by the aluminum extrusions antidumping and countervailing orders.

On September 4, 2014, Assistant Secretary for Enforcement and Compliance Paul Piquado in the attached letter, ALUMINUN COMMERCE RESPONSE, to the lawmakers assured them that the agency is “committed to the robust enforcement of the trade remedy laws” to help provide U.S. firms and workers the opportunity to “compete on a level playing field.” The Assistant Secretary also stated that his office is aiming to reach a decision in its probes by Oct. 8.

STEEL WIRE ROD FROM CHINA PRELIMINARY ANTIDUMPING DETERMINATION

On September 2, 2014, in the attached factual statement,  factsheet-prc-carbon-alloy-steel-wire-rod-ad-prelim-090214, the Department of Commerce (Commerce) announced its affirmative preliminary determination in the antidumping duty (AD) investigation of imports of carbon and certain alloy steel wire rod from the People’s Republic of China (China).  Since the Chinese companies failed to respond to the Commerce Department’s questionnaire, they received a preliminary dumping margin of 110.25 percent with the separate rate steel companies receiving a preliminary dumping rate of 106.19 percent.

CAFC AFFIRMS THE IMPORTANCE OF SEPARATE RATES FOR CHINESE EXPORTERS AS OPPOSED TO PRODUCERS

On September 10, 2014, in the attached Michaels Stores, Inc. v. United States case, CAFC MICHAELS CHINESE EXPORTERS NEED TO GET THEIR OWN RATE, the Court of Appeals for the Federal Circuit (“CAFC”) restated the importance of Chinese exporters, including trading companies, getting their own antidumping rates and that the importer, in fact, confirm that the Chinese exporter has a separate rate. In the case, Michaels, a US importer, assumed that the since the Chinese producer had an antidumping rate, that rate applied to the Chinese exporter. Not true. As the CAFC stated:

“Indeed, it has been Commerce’s policy since 1991 to apply a country-wide rate to all exporters doing business in the PRC unless the exporter (not the manufacturer) establishes de jure and de facto independence from state control in an administrative review proceeding. . . . This court has endorsed this presumption on multiple occasions. . . .

Michaels has not demonstrated that Commerce’s interpretations of the regulation in practice are plainly erroneous or inconsistent with the regulation. Because a noncombination rate for the exporter was established as the PRC-wide rate of 114.90%, Michaels could not rely on its producer rates as a substitute. Were we to conclude otherwise, Michaels could circumvent its antidumping obligations by buying pencils from a state-controlled exporter at a discounted price and then use the antidumping rate associated with its non-state controlled manufacturer.”

OCTOBER ANTIDUMPING ADMINISTRATIVE REVIEWS

On October 1, 2014, Commerce published in the Federal Register the attached notice, OCT REVIEWS, regarding antidumping and countervailing duty cases for which reviews can be requested in the month of October. The specific antidumping cases against China are: Barium Carbonate, Barium Chloride, Electrolytic Manganese Dioxide, Helical Spring Lock Washers, Polyvinyl Alcohol, and Steel Wire Garment Hangers. No countervailing duty cases were listed

For those US import companies that imported Electrolytic Manganese Dioxide, Helical Spring Lock Washers, Polyvinyl Alcohol, and Steel Wire Garment Hangers and the other products listed above from China during the antidumping period October 1, 2013-September 30, 2014 or if this is the First Review Investigation, for imports imported after the Commerce Department preliminary determinations in the initial investigation, the end of this month is a very important deadline. Requests have to be filed at the Commerce Department by the Chinese suppliers, the US importers and US industry by the end of this month to participate in the administrative review.

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

In my experience, many US importers do not realize the significance of the administrative review investigations. They think the antidumping and countervailing duty case is over because the initial investigation is over. Many importers are blindsided because their Chinese supplier did not respond in the administrative review, and the US importers find themselves liable for millions of dollars in retroactive liability. Recently in the Shrimp from China antidumping case, for example, almost 100 Chinese exporters were denied a separate antidumping rate.

DUELING US AND CHINA WTO APPEALS

As mentioned in the prior post, on July 14, 2014, in a decision and summary, which is posted on my blog, the WTO upheld China’s claims that certain US countervailing duty cases against China were inconsistent with the WTO Agreement. On August 22nd, China filed a notice of appeal at the WTO with regards to the remaining cases, followed by the US notice of appeal on August 27th.

Both appeals are taking issue with the initial WTO panel’s finding on the uses of all facts available (“AFA”) in countervailing duty cases against China. Commerce based its AFA determinations on the failure of the Chinese government to provide adequate information to Commerce to make a determination on certain programs of the Chinese government.

In the initial panel ruling, while the US won on China’s challenge to AFA findings, the US lost on several other issues, including the Commerce Department’s use of out of China benchmarks to measure the subsidies and the Commerce Department determination that every state-owned company, in fact, is part of the Chinese government, even if it does not function as a governmental entity. In the initial panel decision, the WTO panel determined that Commerce’s decision to automatically find that state owned enterprises (SOEs) to be part of the government and “public” bodies, which therefore constituted “government involvement” in the market, was a violation of the Countervailing Duty Agreement. The US did not appeal this decision by the WTO initial panel and, therefore, is final and a loss for the US government.

The US alleges that Chinese government made procedural errors in appealing the cases to the WTO, including the failure to specify which AFA determinations were being appealed. The initial panel ruling rejected the US argument stating, “While we have some sympathy for the United States’ position, namely that more detail could have been provided in the panel request regarding what in particular about the manner in which the United States resorted to and used facts available is allegedly inconsistent with Article 12.7 of the SCM Agreement, we are not convinced that Article 6.2 of the DSU requires this,”

During the panel proceedings, China had argued that because Commerce cannot automatically assume that State Owned Enterprises/Companies are public bodies for the purposes of Article 1.1(a)(1), it should also not automatically assume that market conditions are distorted just because a State-Owned Company is involved in the marketplace. The initial panel decision, however, did not directly address this issue raised by the Chinese government and is now being appealed by China. The initial panel stated:

“In our view, some determinations are based on the market share of government-owned/controlled firms in domestic production alone, others on adverse facts available, others on the market share of the government plus the existence of low level of imports and/or export restraints.”

China is also asking on appeal that the WTO overturn the panel’s finding affirming the Commerce Department’s methodology for determining whether a subsidy is specific to an enterprise or group of enterprises within a certain region.

NEW ANTIDUMPING AND COUNTERVAILING DUTY CASE AGAINST BOLTLESS STEEL SHELVING FROM CHINA

On August 26, 2014, Edsall Manufacturing filed a new AD and CVD case against Boltless Steel Shelving from China. The alleged Antidumping rates are 33 to 267%.

The ITC notice and the relevant pages of the petition are attached.  STEEL SHELVING SHORT PETITION ITC PRELIMINARY NOTICE

RUSSIA—US SANCTIONS AS A RESULT OF UKRAINE CRISIS

On September 3, 2014, I spoke in Vancouver Canada on the US Sanctions against Russia, which are substantial, at an event sponsored by Deloitte Tax Law and the Canadian, Eurasian and Russian Business Association (“CERBA”). Attached are copies of the powerpoint for the speech and a description of our Russian/Ukrainian/Latvian Trade Practice for US importers and exporters.  US SANCTIONS RUSSIA RUSSIAN TRADE PRACTICE

There is a great deal of confusion and uncertainty surrounding business with Russian companies. As sanctions continue to expand against Russia, any company interested in doing business with Russia must constantly check the regulations and hire legal counsel. Every single transaction with Russian entities is a potential target of the sanctions, and, therefore, any US company interested in doing business with Russia must be extremely vigilant. The US regulations mirror regulations in Canada and the EU, but there are differences.

There are two groups of US regulations. The most powerful regulations are administered by Treasury—Office of Foreign Assets Control (“OFAC”). A second group of regulations have been issued by the Commerce Department’s Bureau of Industry and Security (BIS) blocking exports of certain energy-sector technologies.

With regards to the sanctions administered by OFAC, US Presidential Executive Orders 13660, 13661, and 13662 define how U.S. Government will identify targets of sanctions (e.g., financial services, energy, metals and mining, engineering, and defense sectors and government agencies and officials).

The specific OFAC regulations regarding Ukraine are set forth in 31 CFR 589 –”Blocking”/“Asset Freezing” sanctions prohibiting transactions with specific persons and entities. Attached are the Ukraine regulations, UKRAINE RELATED SANCTIONS REGULATIONS, but they do change as the sanctions evolve.

Pursuant to the OFAC regulations, U.S. persons are prohibited from conducting transactions, dealings, or business with Specially Designated Nationals and Blocked Persons (SDNs). A US person must also block the property or interest in property of SDNs that they hold or that is located in the United States. The blocked persons list can be found at http://sdnsearch.ofac.treas.gov/. See also:   www.treasury.gov/resource-center/sanctions/programs/pages/ukraine.aspx . The list includes the Russian company, United Shipbuilding, and a number of Russian Banks, including Bank Rossiya, SMP Bank, Bank of Moscow, Gazprombank OAO, Russian Agricultural Bank, VEB, and VTB Bank.

When such SDN property is blocked, it must be reported to OFAC within 10 days, and cannot be dealt in by U.S. persons without prior authorization from OFAC.  Civil penalties are up to $250,000 or 2x transaction value, per violation (strict liability regime); criminal fine up to $1 million, and/or up to 20 years in prison.

On July 29, 2014, OFAC issued a new “Sectoral Sanctions Identification List” (the “SSI List”) that identifies specific Russian persons and entities covered by these sectoral sanctions. See www.treasury.gov/resource-center/sanctions/SDN-List/pages/ssi_list.aspx. U.S. persons are prohibited from engaging in certain transactions with persons and entities on the SSI List, but are not required to “freeze” or “block” property or interests in property of such persons and entities as if they were SDNs.

Specifically U.S. persons are prohibited from:

“transacting in, providing financing for, or otherwise dealing in new debt of longer than 90 days maturity or new equity for these persons … their property, or their interests in property. All other transactions with these persons or involving any property in which one or more of these persons has an interest are permitted, provided such transactions do not otherwise involve property or interests in property of a person blocked pursuant to Executive Orders 13660, 13661, or 13662, or any other sanctions programs implemented by the Office of Foreign Assets Control [i.e., an SDN]”

General OFAC policy restrictive measures apply automatically to any entity owned 50% or more by SDN, even if the entity is not specifically named as SDN.

Even if company is not on SDN/SSI list, a US company wishing to do a transaction with a Russian company needs to determine in writing whether the company is 50% or more owned by any SDN or controlled by an SDN. As OFAC has stated in its announcement:

“U.S. persons are advised to act with caution when considering a transaction with a non-blocked entity in which one or more blocked persons has a significant ownership interest that is less than 50 percent or which one or more blocked persons may control by means other than a majority ownership interest”

Thus companies or persons on the SSI list may become named SDNs in the future. SSI and SDN Lists are not static but evolving. Lists will likely expand and have expanded based on Russian behavior in Ukraine. Everything could change overnight. Do not rely on a dated list. Keep checking.

www.treasury.gov/resource-center/sanctions/SDN-List/pages/ssi_list.aspx

The regulations are extremely complicated and nothing is straight forward. Thus, each transaction with a Russian company must be examined closely in detail and will be very fact specific. The devil in these regs is definitely in the details.

The US and EU sanctions also are affecting the Russian economy as indicated by the fact that VTB, Russia’s second-largest bank, sold 214 billion rubles ($5.4 billion) worth of preferred shares to Russia’s finance ministry because the sanctions have made it more difficult for the Bank to borrow overseas.

Meanwhile on August 6, 2014, the Commerce Department’s Bureau of Industry and Security (BIS) issued new sanctions blocking exports of certain energy-sector technologies. Commerce will now require an export license for items used in deepwater, Arctic offshore, or shale projects to produce oil or gas in Russia. Items subject to a license denial under the rule include drilling rigs, horizontal drilling parts, drilling and completion equipment, and subsea processing equipment. Commerce issued no savings clause, which means if the items are on a freighter on the way to Russia, they have to be called back.

On September 11, 2014, the US and the European Union announced new restrictions on Russian access to capital market. The new sanctions target Russian financial, energy and defense companies and make it more difficult to make loans to the five Russian state-owned banks, by tightening debt financing restrictions by reducing the maturity period of the new debt issued by those institutions from 90 days to 30 days. The companies targeted in the new round of OFAC sanctions include OAO Gazprom, Roseneft, Lukoil OAO, pipeline operator, Transneft, and Rostec, a Russian institution dealing in industrial technology products, along with the nation’s largest financial institution, Sberbank of Russia.

OFAC also added another set of Commerce export restrictions on certain oil development technologies by broadening the scope of the items that are banned and adding Gazprom, Lukoil and three other energy firms to the list of specifically banned export destinations.

Treasury stated:

“Today’s step … will impede Russia’s ability to develop so-called frontier or unconventional oil resources, areas in which Russian firms are heavily dependent on U.S. and western technology. While these sanctions do not target or interfere with the current supply of energy from Russia or prevent Russian companies from selling oil and gas to any country, they make it difficult for Russia to develop long-term, technically challenging future projects.”

These new sanctions come close to cutting off entire sectors of the Russian economy.  In practice, U.S. financial institutions will likely treat any transaction with a listed bank as a rejection. The new measures materially restrict access to American and European debt markets for the targeted financial institutions and defense firms.  The U.S. actions now bar affected Russian institutions from the American debt markets for loans over 30 days, meaning that while they will still be able to conduct day-in, day-out business with overnight loans, it will be significantly harder to finance medium- and long-term activity.

The sanctions have already had an impact on oil projects. On September 19, 2014 ExxonMobil announced that it is stopping work on an offshore oil well in the Arctic Ocean it is jointly developing with Russian oil giant OAO Rosneft in order to comply with the escalating sanctions.

In addition to the OFAC and Commerce sanctions against Russia, on July 18, 2014 a massive arbitration award was issued by arbitral tribunal in The Hague under Permanent Court of Arbitration. The Court unanimously held that the Russian Federation breached its international obligations under the Energy Charter Treaty by destroying Yukos Oil Company and Yukos shareholders and awarded the shareholders $50 billion.

There is now a legal search for Russian Federation assets to pay off the award. Yukos lawyers will be able to enforce the arbitration award in any of the 150 countries bound by the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards.

CUSTOMS

TREK LEATHER—WHEN ARE OWNERS LIABLE FOR DUTIES OWED BY COMPANIES AS IMPORTERS OF RECORD

On September 16, 2014, in the attached United States v. Trek Leather, Inc. case, CAFC TREK LEATHER DECISION, the Court of Appeals for the Federal Circuit (“CAFC”) in an “en banc” decision made by all the judges in the CAFC held that the President of an importing company may be held personally liable for submitting false information to U.S. Customs and Border Protection.

In the decision, the entire CAFC reversed the earlier panel’s determination that only the importer of record could be liable for penalties, not the owner of the company.  Prior to the decision, importers assumed that the owner could be personally liable only if Customs and Border Protection (“CBP”) pierced the corporate veil of the import company.  In this case, however, the CAFC found the owner, Shadadpuri, himself liable for gross negligence for submitting documentation to CBP that understated the value of more than 70 imports of men’s suits in 2004, even though only the company, and not its president, was listed as the importer of record.

As the CAFC stated:

“Recognizing that a defendant is a “person,” of course, is only the first step in determining liability for a violation of either of the subparagraphs. What is critical is the defendant’s conduct. The two subparagraphs of section 1592(a)(1) proscribe certain acts and omissions. . . .

What Mr. Shadadpuri did comes within the commonsense, flexible understanding of the “introduce” language of section 1592(a)(1)(A). He “imported men’s suits through one or more of his companies.” . . . .While suits invoiced to one company were in transit, he “caused the shipments of the imported merchandise to be transferred” to Trek by “direct[ing]” the customs broker to make the transfer. . . . Himself and through his aides, he sent manufacturers’ invoices to the customs broker for the broker’s use in completing the entry filings to secure release of the merchandise from CBP custody into United States commerce. . . . By this activity, he did everything short of the final step of preparing the CBP Form 7501s and submitting them and other required papers to make formal entry. He thereby “introduced” the suits into United States commerce.

Applying the statute to Mr. Shadadpuri does not require any piercing of the corporate veil.  Rather, we hold that Mr. Shadadpuri’s own acts come within the language of subparagraph (A).  It is longstanding agency law that an agent who actually commits a tort is generally liable for the tort along with the principal, even though the agent was acting for the principal. . . . That rule applies, in particular, when a corporate officer is acting for the corporation. . . .

We see no basis for reading section 1592(a)(1)(A) to depart from the core principle, reflected in that background law, that a person who personally commits a wrongful act is not relieved of liability because the person was acting for another. . . . That is as far as we go or need to go in this case. We do not hold Mr. Shadadpuri liable because of his prominent officer or owner status in a corporation that committed a subparagraph (A) violation.  We hold him liable because he personally committed a violation of subparagraph (A).”

ACTIVATED CARBON—THE IMPORTANCE OF DEADLINES WHEN APPEALING FROM CUSTOMS LIQUIDATIONS

On September 8, 2014, the Court of International Trade in the attached Carbon Activated Corp. v. United States case, CARBON ACTIVATED CORP PROTEST FAILS, dismissed the appeal finding that the Court did not have jurisdiction because of missed deadlines. As the Court stated:

“Here, subsection (a) would have been available to Plaintiff because the correct avenue for challenges to liquidations is first to lodge a protest with Customs within 180 days of the liquidation and then to challenge any denial of that protest in this court. . . . Plaintiff filed a protest but it did so three years after the alleged erroneous liquidation. It is established that “a remedy is not inadequate simply because [a party] failed to invoke it within the time frame it prescribes.” . . .Accordingly, Plaintiff had an adequate remedy for its alleged erroneous liquidation, but it lost that remedy because its protest was untimely, not because the remedy was inadequate.

It is a tenet of customs law that the importer has a duty to monitor liquidation of entries. . . . Plaintiff concedes this point. . . Therefore Plaintiff’s claim that it “was first made aware [in June 2012] that these three entries had been erroneously liquidated as entered in April and May of 2008” is insufficient to extend the statute of limitations. . . . Plaintiff has the duty to monitor the liquidation of its entries, and a statutory remedy is in place to challenge any erroneous liquidations for a diligent importer who complies with this duty. Plaintiff’s failure to pursue that remedy in a timely manner does not fall under the rubric of “manifestly inadequate” and therefore Plaintiff cannot invoke subsection (i) jurisdiction in this case.”

FALSE CLAIMS ACT

In the attached false claims act case, PIPES FCA CASE, on September 4, 2014, in United States of America: Civil Action ex rel. Customs Fraud Investigations v. Vitaulic Company, a Federal District Court dismissed a false claims act case ruling there wasn’t enough evidence supporting allegations the pipe fittings manufacturer knowingly filed false documents to evade U.S. customs duties.

IP/PATENT AND 337 CASES

337 CASES

There have been developments at the US International Trade Commission (“ITC”) in 337 cases and patent area.

SANCTIONS AGAINST UPI SEMICONDUCTOR

On September 25, 2014, the CAFC in the attached UPI Semiconductor Corp. v. United States, UPI SEMICONDUCTORS CAFC DECISION, affirmed a decision of the US International Trade Commission to impose penalties on UPI for violation of a consent order in a 337 patent case. The CAFC stated:

“Before the court are the appeal of respondent intervenor UPI Semiconductor Corp. (“UPI”) and the companion appeal of complainant-intervenors Richtek Technology Corp. and Richtek USA, Inc. (together “Richtek”) from rulings of the International Trade Commission in an action to enforce a Consent Order, Certain DC-DC Controllers and Products Containing Same, Inv. No. 337-TA-698 (75 Fed. Reg. 446). We affirm the Commission’s ruling that UPI violated the Consent Order as to the imports known as “formerly accused products,” and affirm the modified penalty for that violation. We reverse the ruling of no violation as to the “post-Consent Order” products. The case is remanded for further proceedings in accordance with our rulings herein.”

MADE IN THE USA—FTC AND FALSE ADVERTISING PROBLEM

On October 1, 2014, the Wall Street Journal reported that the Made in US requirement has escalated because of stricter requirements by the State of California. FTC guidelines state that an unqualified “Made in USA” label can go on any goods that are “all or virtually all” made domestically in the United States, but the words “virtually all” are open to interpretation based on the specific facts of the case.

But California has stricter guidelines than the FTC requiring the entire product to be made in the US. If even one small part of a product is foreign, California state law says calling the product “Made in the USA” amounts to false advertising. This law has provoked a number of consumer/class action lawsuits filed in California against US manufacturers.

As one example, a maker of helium tanks designed to be used at children’s parties was sued because it started packing imported balloons with the equipment. In another case, a California company was sued because it produces Maglite flashlights that use imported small rubber rings and light bulbs from abroad.

The California law was passed in 1961 to shield domestic producers from competitors who might get a pricing edge by using large amounts of cheap imported parts to manufacture goods labeled “Made in USA.” The problem is that it has become increasingly difficult to avoid using at least some imported content in a US product.

SECTION 337 COMPLAINTS

NEW 337 COMPLAINT AGAINST FOOTWARE PRODUCTS FROM CHINA

Today, October 14th, Converse Inc. filed a new 337 IP case against footware products/sneakers from China for infringement of Converse’s registered and common law trademarks.  Relevant parts of the petition are attached.  LONG 337 FOOTWEAR PETITION The ITC notice of the petition is set forth below.

Docket No: 3034

Document Type: 337 Complaint

Filed By: V. James Adduci, II

Firm/Org: Adduci, Mastriani and Schaumberg

Behalf Of: Converse Inc.

Date Received: October 14, 2014

Commodity: Footwear Products

Description: 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 Footwear Products . The proposed respondents are: Skechers U.S.A., Inc., Manhattan Beach, CA; Wal-Mart Stores, Inc., Bentonville, AR; A-List, Inc., d/b/a Kitson, Los Angeles, CA; Aldo Group, Canada; Brian Lichtenberg, LLC, Los Angeles, CA; Cmerit USA, Inc., d/b/a Gotta Flurt, Chino, CA; Dioniso SRL, Italy; Edamame Kids, Inc., Canada; Esquire Footwear, LLC, New York, NY; FILA U.S.A., Inc., Sparks, MD; Fortune Dynamic, Inc., City of Industry, CA; Gina Group, LLC, New York, NY; H & M Hennes & Mauritz LP, New York, NY; Highline United LLC d/b/a Ash Footwear USA, New York, NY; Hitch Enterprises Pty Ltd d/b/a Skeanie Unit 3, Australia; Iconix Brand Group, Inc., d/b/a Ed Hardy, New York, NY; Kmart Corporation, Hoffman Estates, IL; Mamiye Imports LLC d/b/a Lilly of New York, Brooklyn, NY; Nowhere Co., Ltd. d/b/a Bape, Japan; OPPO Original Corp., City of Industry, CA; Orange Clubwear, Inc., d/b/a Demonia Deviant, Westminster, CA; Ositos Shoes, Inc., d/b/a Collection’O, South El Monte,CA; PW Shoes Inc., Maspeth, NY; Ralph Lauren Corporation, New York, NY; Shenzhen Foreversun Industrial Co., Ltd (a/k/a Shenzhen Foreversun Shoes Co., Ltd), China; Shoe Shox., Seattle, Washington; Tory Burch LLC, New York, NY; Zulily, Inc., Seattle, Washington; Fujian Xinya I & E Trading Co., Ltd., China; Zhejiang Ouhai International Trade Co., Ltd., China; and Wenzhou Cereals Oils & Foodstuffs Foreign Trade Co., Ltd., China.

Status: Pending Institution

On the same day that Converse filed the section 337 case, it also filed the attached trademark complaint for damages in the Federal District Court in Brooklyn.  CONVERSE FOOTWEAR FED CT COMPLAINT

PERSONAL TRANSPORTERS FROM CHINA

On September 9, 2014, Segway filed a major 337 patent case against imports of personal transporters from a number of Chinese companies in Beijing and Shenzhen. The ITC notice is below and the relevant parts of the Petition are attached, SHORT PERSONAL TRANSPORTERS 337 Complaint. Segway is requesting a general exclusion order to exclude all personal transporters from China and other countries and also cease and desist orders to stop importers from selling infringing personal transporters in their inventory.

The proposed respondents are: PowerUnion (Beijing) Tech Co. Ltd., Beijing; UPTECH Robotics Technology Co., Ltd., Beijing; Beijing Universal Pioneering Robotics Co., Ltd., Beijing; Beijing Universal Pioneering Technology Co., Ltd., Beijing; Ninebot Inc.,(in China) Beijing; Ninebot Inc., Newark, DE; Shenzhen INMOTION Technologies Co., Ltd., Guangdong; Robstep Robot Co., Ltd., Guangdong; FreeGo High-Tech Corporation Limited, Shenzhen; Freego USA, LLC, Sibley, IA; Tech in the City, Honolulu, HI; and Roboscooters.com, Laurel Hill, NC.

Chinese companies must respond to the complaint in about 60 days, 30 days for Institution and 30 days from service of complaint. If the Chinese companies fail to respond, they can be found in default and exclusion orders against their products can be issued.

If anyone has questions about this compliant, please feel free to contact me.

Dorsey & Whitney has substantial expertise in the patent and 337 areas. Recently, we were able to win a major 337 case for a Japanese company in the Point-to Point Network Communication Devices 337 case.

PATENT AND IP CASES IN GENERAL

NEW PATENT AND TRADEMARK CASES AGAINST CHINESE AND TAIWAN COMPANIES

On September 23, 2014, BASF Corp. filed a patent infringement case against SNF Holding Company, Flopam Inc., Chemtall Inc., SNF SAS, SNF (China) Flocculant Co., Ltd. BASF

On October 6, 2014, Hewlett-Packard Co. filed a patent case against Ninestar Image Tech Ltd., Ninestar Technology, Co., Ltd. and Apex Microelectronics Co., Ltd. for infringement of HP’s patents on printer cartridges. Ninestar is located in Shenzhen and has been the target of a section 337 patent case involving similar technology. NINESTAR NEW PATENT CASE

On September 2, 2014, Cephalon, Inc. filed a patent infringement case for drugs against Nang Kuang Pharmaceutical Co., Ltd. in Taiwan and Canda NK-1, LLC. TAIWAN GENERIC DRUGS

Complaints are attached above.

CHINESE PATENT CASES

In the attached report in English and Chinese, ACTUAL ABA COMMENTS CHINESE AND ENGLISH, the American Bar Association (“ABA”) ABA antitrust, intellectual property and international law sections raised concerns on judicial interpretations from China’s highest court regarding certain patent infringement trial issues, concerns about some proposed claims rules and also other patent issues.

One concern is that under the drafted requirement, when there are two or more claims in a patent, a patent holder would be required to specify the infringed claim in the complaint, according to the comments. But if the owner doesn’t point out which claim is infringed, the court would presume all of the independent claims were alleged to be infringed. The ABA sections, however, said that such a requirement might “deter meritorious claims” particularly because the infringement details might be controlled by the alleged infringer.

Finally, the ABA sections are also concerned about the Chinese draft that appeared to impose compulsory licensing obligations when having an accused infringer stop practicing the relevant patents would either harm the public interest or cause a “serious interest imbalance between the parties.”

Recently US companies have argued that China has made it more difficult for US owners of pharmaceutical patents to provide supplemental information to fend of certain legal challenges. U.S. companies are now reporting an increasing number of cases where they are being barred from providing such additional information if their drug patents are challenged for a different reason.

During the December 2013 JCCT meeting, the U.S. government complained to the Chinese government it was holding up or invalidating pharmaceutical patents by charging that the application contained insufficient information to meet the requirements of Article 26.3 of Chinese patent law, without allowing brand-name companies to supplement information after the initial filing.  According to Commerce, at the JCCT, the Chinese government pledged that patent applicants could supplement their initial data submissions, and it has made progress toward implementing that commitment.  Recently, however, it appears that the Chinese government may be back sliding on that commitment.

PRODUCTS LIABILITY/FDA

CHINA RESTRICTIONS ON US FOOD PRODUCTS

On Aug. 22, 2014 – Agriculture Secretary Tom Vilsack announced that California citrus farmers will be able to resume exports to China this season. A series of scientific exchanges between the USDA’s Animal and Plant Health Inspection Service (APHIS) and China’s General Administration of Quality Supervision, Inspection, and Quarantine (AQSIQ) resulted in an agreement for California citrus to again be exported to China. APHIS and USDA’s Foreign Agricultural Service worked closely with the U.S. citrus industry to ensure the successful outcome.

In April 2013, California-origin citrus was suspended from entering the Chinese market due to interceptions of brown rot (Phytophthora syringae), a soil fungus that affects stored fruit. Over the next year, USDA worked with China to address China’s plant health concerns and reopen the market for California citrus exports.

In a statement following the USDA announcement, Western Growers Association Executive Vice President Matt McInerney said China was the third-largest market for California citrus exports before the ban. The USDA release said California citrus exports have a total annual value of $30 million.

On September 15th, it was announced that USDA and USTR officials were in Beijing to discuss the implementation of the Trade Facilitation Agreement (TFA) and in particular a meeting of the sanitary and phytosanitary (SPS) working group of the U.S.-China Joint Commission on Commerce Trade (JCCT), where the agenda will likely touch upon issues like China’s ban on U.S. beef and its regulatory process for approving biotechnology traits. China closed its beef market to U.S. exports due to a 2003 outbreak of bovine spongiform encelopathy (BSE) – or “mad cow” disease — and has since set a number of preconditions for opening it, including a U.S. livestock traceability system.

Early in September, nineteen 19 Senators urged USTR Michael Froman to act on the Chinese government’s rejection of U.S. shipments of dried distillers grains that contained traces of an unapproved biotech trait. In the attached letter, SENATE LETTER DISTILLER GRAINS, the 19 Senators stated:

“We write you to convey our strong concerns over recent action taken by the Chinese government to reject U.S. export shipments of dried distillers grains (DDGs) that contain traces of a U.S. approved trait, which has been under regulatory consideration by the Chinese government. We urge you to work with China to restore the flow of trade as quickly as possible and to develop a more consistent set of rules governing the trade of new crop technologies between the two countries.

As you know, China is the top destination for U.S. exports of DDGs, totaling four million tons valued at $1.6 billion in 2013. Every link in the DDGs supply chain-including ethanol producers, corn farmers, and shippers-have already incurred significant economic damages due to these actions by the Chinese government.

The trade disruption in DDGs is yet another example of the regulatory challenges industry has faced with China since it began blocking U.S. corn shipments in November 2013. We encourage you to work closely with China to promote a science-driven review process for agricultural biotechnology that issues determinations without undue delay, consistent with WTO member country obligations.

As biotech products are a key component of U.S. agricultural trade with China, including exports of DOGs, achieving greater cooperation between the two countries on trade issues involving new crop technologies is essential to maintaining our position as the leading agricultural exporter worldwide.

We look forward to continuing to work with you to strengthen our trade relationship with China in agriculture.”

CHINESE INVESTMENT OPPORTUNITIES

US INVESTMENT IN CHINA

Dorsey recently published the attached short brochure,  DORSEY CHINA INVESTMENT BROCHURE, on issues that foreign companies and individuals face when investing in China.

As stated in the brochure,

“Despite the global financial crisis, foreign direct investment into China continues to grow. With China recently overtaking Japan as the world’s 2nd largest economy, foreign investment into China looks set to continue its rise. Nonetheless, foreign investors need to be aware of a number of crucial factors.”

The brochure then goes into details about the following area: Restrictions on Foreign Ownership, Business Vehicles, Approval & Registration, Capital Requirements, Shareholder & Director Nationality, Management Structure, Directors’ Liability, Parent Company Liability, Work/Residency Permits, Thin Capitalization Rules, Competition, Restrictions in the Financial Services Sector, Governing Law of Documents.

ANTITRUST– VITAMIN C, MAGNESITE AND AU OPTRONICS

There have been major developments in the antitrust area both in the United States and more importantly in China.

TAIWAN LCDS CASE

On September 5, 2014, the US Department of Justice and the Federal Trade Commission filed the attached brief, AU OPTRONICS BRIEF, in the 7th Circuit Court of Appeals in the Motorola Mobility LLC v. AU Optronics case, the Taiwan LCDs case. In that case, the Seventh Circuit vacated its March 2014 decision that Motorola’s case did not show direct effect on US Commerce sufficient to satisfy the Foreign Trade Improvements Act (“FTAIA”).

In the case Motorola sought damages for antitrust overcharges based on allegedly price fixed LCD panels that were manufactured and purchased overseas, but later incorporated into goods sold in the United States. In their brief, the DOJ and the FTC argued that the 7th Circuit should hold that an overseas conspiracy to fix prices on the component of a finished product that is sold in the US can yield liability under the FTAIA. The DOJ and the FTC argue in their brief:

“The FTAIA makes clear that the Sherman Act does not apply to conduct that adversely affects only foreign markets, but it also ensures that purchasers in the United States remain fully protected by the federal antitrust laws. This Court should not erode this protection.

Conduct involving import commerce is excluded from FTAIA’s coverage, and the Sherman Act thus applies fully to such conduct. This import-commerce exclusion is not limited to circumstances in which the defendants are importers or specifically “target” U.S. import commerce. A price-fixing conspiracy can involve import commerce even if the price-fixed product is physically imported by a third party or if the defendants did not focus on U.S. imports. A narrower interpretation of the exclusion would undermine the FTAIA’s purpose to protect purchasers in the United States.

The LCD price-fixing conspiracy involved import commerce because defendants fixed the price of LCD panels sold for delivery to the United States. Yet, this does not, by itself, entitle Motorola to recover damages for overcharges on all its panel purchases. But it does allow the government to bring criminal and civil enforcement actions. Unlike civil damage claims, in which courts should differentiate among claims based on the underlying transactions, government enforcement actions seek to prosecute or enjoin violations of law, not to obtain damages compensating for particular injuries.

The price-fixing conspiracy also affected import and domestic commerce in cellphones by raising their price. This effect is not only substantial and reasonably foreseeable, but also direct. The natural and probable consequence of increasing the price of a significant component like LCD panels is to increase the price of cellphones that incorporate those panels. A contrary holding risks constraining the government’s ability to prosecute offshore component price fixing that threatens massive harm to U.S. commerce and consumers.

While the government may prosecute conduct that has the requisite effect under Section 6a(1), Section 6a(2) requires that the effect “give rise to [plaintiff’s] claim,” and thus limits what injuries are redressable by damages claims. The injury to Motorola’s foreign affiliates is not caused by the inflated prices of cellphones sold in import or domestic commerce, and therefore the affiliates’ claims do not arise from that effect on U.S. commerce. The first purchasers of cellphones in affected U.S. commerce, however, did suffer an injury arising out of the price fixing’s U.S. effect.

The Illinois Brick doctrine would ordinarily bar these purchasers from recovering damages under federal law because they did not purchase directly from the conspirators, but that doctrine should be construed to permit damages claims by the first purchaser in affected U.S. commerce when Section 6a(2) bars the direct purchasers’ claims. That construction would permit vigorous private enforcement of the antitrust laws—the reason full recovery is ordinarily concentrated in direct purchasers—without implicating the doctrine’s concerns about multiple recovery and apportionment. Absent that construction, it is possible that no private plaintiff could recover damages under the federal antitrust laws.

In any case, government enforcement is critical to combating foreign price-fixing cartels that threaten significant harm in the United States. Therefore, this Court should hold that a conspiracy to fix the price of a component can directly affect import commerce in finished products incorporating that component and that the conspiracy in this case did directly affect that commerce. That holding would ensure the government is able to enforce the federal antitrust laws regardless of any limitations on private damages claims resulting from Section 6a(2).”

Emphasis added, footnotes omitted.

BILL BAER DOJ SPEECHES

On September 10, 2014, Bill Baer, the Assistant Attorney General Antitrust Division U.S. Department of Justice, gave the attached speech, BAER SPEECH ON ANTITRUST PROSECUTION, at the Georgetown Antitrust Enforcement Symposium entitled “Prosecuting Antitrust Crimes” in which he addressed the importance of enforcement of the antitrust laws against cartels and the importance of the leniency system. With regards to the prosecution of antitrust cases, Assistant Attorney General Bill Baer stated:

“Those who conspire to subvert the free market system and injure U.S. consumers are prosecuted vigorously and penalized appropriately. Our record demonstrates that corporations that commit these crimes face serious consequences, including significant criminal fines and, in appropriate cases, tough probation terms. Individual wrongdoers risk lengthy sentences. Courts have imposed criminal fines on corporations totaling as much as $1.4 billion in a single year; the average jail term for individuals now stands at 25 months, double what it was in 2004. Those penalties tell only part of the story. Perpetrators also must confront private and state civil suits seeking treble damages and risk other collateral consequences for their crimes.

Often our prosecutions end with plea agreements. So long as price fixers are held accountable for their crimes, this is an efficient and appropriate way to resolve criminal price-fixing allegations. When the defendant exercises its right to put us to our proof, however, we have the obligation to proceed to trial to ensure justice is done. Our recent record demonstrates the division’s willingness and ability to prosecute successfully antitrust criminal violations. . . . And just this summer, the Ninth Circuit affirmed the corporate convictions of AU Optronics and its American subsidiary, and the individual convictions of two of its executives for fixing prices in the LCD industry. . . .

We also increasingly benefit from working closely with competition enforcers from many agencies around the world.

Our successful efforts to detect and prosecute cartels also reflect the broad consensus in the United States that schemes to deny consumers the benefits of competition have no place in the free market and merit significant punishment. This is not a partisan issue. This Administration and its predecessors have made cartel enforcement a top priority.”

On September 12, 2014 Assistant Attorney General Bill Baer spoke at Fordam Law School on “International Antitrust Enforcement: Progress Made; Work To Be Done”. In the attached speech, BAER SPEECH INTERNATIONAL CARTEL. the Assistant Secretary spoke of the importance of not letting industrial policy and protectionism trump competition concerns in the enforcement of antitrust laws and indirectly criticized China’s enforcement of its Anti-Monopoly Law:

“The U.S. and EU share the core belief that antitrust enforcement must protect and promote competition and consumer welfare. We base our respective enforcement decisions on the competitive effects and consumer benefits of the transaction or conduct being reviewed. We agree that non-competition factors, such as the pursuit of industrial or domestic policy goals, play no role in sound competition enforcement.

The U.S. and EU also agree that antitrust agencies are most effective when they follow decision-making processes that are fair, independent and transparent. Our shared commitment to process pays off. It increases the likelihood that our agencies will be positioned to obtain and consider all relevant facts and issues prior to making a decision. This, in turn, enhances the legitimacy and credibility of our enforcement decisions, and increases the parties’ and public’s confidence in the agency’s ultimate determination. . . .

Worldwide, the total criminal and regulatory fines, penalties and disgorgement obtained to date by law enforcement authorities is over $4 billion.

The international competition community increasingly embraces that view. Progress is being made towards convergence on due process and transparency. However, more work needs to be done. We must continue to seek broad international consensus on the principle that enforcement decisions be based solely on the competitive effects and consumer benefits of the transaction or conduct being reviewed. We must ensure that enforcement decisions are not used to promote domestic or industrial policy goals, protect state-owned or domestic companies from foreign competitors, or create leverage in international trade negotiations.

That is a straightforward and sensible proposition. We are living in a globalized economy where the number of companies operating in multiple jurisdictions continues to rise and there is a greater likelihood that anticompetitive transactions or conduct in one jurisdiction will harm competition and consumers in other parts of the world.

This is an easy proposition to state as a shared value. But it is challenging to implement, especially for enforcers in jurisdictions that are early in the process of moving from a planned economy to a free market system; are shifting their focus from promoting producer welfare to consumer welfare; or have state-owned and domestic corporations with considerable influence over enforcement authorities. Nonetheless, antitrust enforcers in such jurisdictions need to overcome these challenges and commit to making enforcement decisions based solely on competitive effects and consumer benefits. Otherwise, they risk losing the trust and confidence of businesses that are looking to enter or expand in their markets, but may be reluctant to do so out of fear that the playing field is not level. . . . .

Fourth, antitrust enforcement involving intellectual property rights should not be used to implement domestic or industrial policies. Such an approach undermines the integrity and credibility of an agency’s decisions. Enforcers need to be particularly careful about imposing price controls or prohibiting so-called excessive pricing. Pricing freedom in bilateral licensing negotiations is critical for intellectual property owners. I share the concern FTC Chairwoman Ramirez expressed earlier this week with antitrust regimes that appear to be advancing industrial policy goals by “imposing liability solely based on the royalty terms that a patent owner demands for a license . . . .” U.S. antitrust law does not bar “excessive pricing” in and of itself; generally speaking, lawful monopolists may set any price they choose.

This rule applies to holders of intellectual property rights as well. In addition, regardless of the underlying theory of antitrust liability, I am concerned about antitrust regimes that appear to force adoption of a specific royalty that is not necessary to remedy the actual harm to competition. Using antitrust enforcement to reduce the price firms pay to license technology owned and developed by others is short-sighted. Any short-term gains derived from imposing what are effectively price controls will diminish incentives of existing and potential licensors to compete and innovate over the long term, depriving jurisdictions of the benefits of an innovation-based economy.

Now, you may be asking why U.S. antitrust enforcers should care about what other enforcers do within their jurisdictions. There are many reasons. Here are a few.

First, U.S. enforcers can best cooperate with their foreign counterparts on investigations when there is agreement on core analytics and procedural principles. This, in turn, allows U.S. enforcers to more effectively and efficiently address anticompetitive transactions and conduct.

Second, we are continuing to move toward an interconnected global economy. This means that U.S. companies and consumers will increasingly be subject to or affected by the enforcement approach taken by antitrust agencies in other jurisdictions.

Third, convergence on substantive and procedural principles will help U.S. and non-U.S. companies comply with competition laws in a more cost-effective manner, as well as provide them the predictability that they need when trying to run their businesses in multiple jurisdictions.”

Emphasis added.

NEW ANTITRUST COMPLAINTS

On September 11, 2014, elQ Energy Inc., filed an antitrust case against a number of Japanese, and US for price fixing of antalum capacitors, aluminum electrolytic capacitors and film capacitors. JAPAN PRICE FIXING ALUMINUM CAPACITERS

On August 29, 30204, National Trucking Financial Reclamation filed a class action antitrust case against US and Taiwan companied, including Jui Li Enterprise Company, Ltd., TYG Products, L.P., Gordon Auto Body Parts Co., Ltd., Auto Parts Industrial, Ltd., and Cornerstone Auto Parts, LLC., for price fixing of aftermarket automotive sheet metal parts. TAIWAN SHEET METAL ANTITRUST COMPLAINT

CHINA ANTI-MONOPOLY CASES

The rise in Chinese anti-monopoly case has created intense concern from the US government and US and foreign companies. In September 2014, the US China Business Council published the major report/survey from US Companies, US CHINA BUSINESS COUNCIL REPORT CHINA AML, about the impact of the Chinese anti-monopoly law on US business in China. The Executive Summary of the report states as follows:

“Executive Summary

  • China’s increased level of competition enforcement activity and the high-profile reporting of its competition investigations have prompted growing attention and concern from US companies. Eighty-six percent of companies responding to the US-China Business Council’s (USCBC’s) 2014 member company survey indicated they are at least somewhat concerned about China’s evolving competition regime—although more so about the potential impact than actual experience so far.
  • China’s competition regime framework is relatively new. The Antimonopoly Law (AML) came into force in 2008 after Chinese authorities spent more than a decade drafting the law and consulting with foreign competition authorities from the United States, the European Union, and other jurisdictions. The AML draws from elements of both the US and EU competition laws, though it is more closely tied to the EU model and contains some elements unique to China.
  • The rise in competition-related investigations has corresponded to the buildup in personnel at regulatory agencies following the AML’s implementation.
  • USCBC monitoring of publicly announced cases indicates that both foreign and domestic companies have been targets of AML-related investigations, but that foreign companies appear to have faced increasing scrutiny in recent months.
  • The perception that foreign companies are being disproportionately targeted is also fueled by China’s domestic media reporting, which has played up foreign-related investigations versus those of domestic companies.
  • Targeted or not, foreign companies have well-founded concerns about how investigations are conducted and decided. Company concerns include:

 o Fair treatment and nondiscrimination

o Lack of due process and regulatory transparency

o Lengthy time periods for merger reviews

o Role of non-competitive factors in competition enforcement

o Determination of remedies and fines

o Broad definition of monopoly agreements

Bigger questions remain unanswered about the objectives of China’s competition regime, such as: Will China use the AML to protect domestic industry rather than promote fair competition? Is the government using the AML to force lower prices, rather than let the “market play the decisive role” as enshrined in the new economic reform program? The answers are not fully determined yet, but in at least some cases so far there are reasons for concern.”

In early September 2014 the US Chamber of Commerce released the attached report, AM CHAM ACTUAL REPORT ON AML, which is highly critical of the Chinese government’s enforcement of its Anti-Monopoly Law. The report states:

Antitrust enforcement

This year, the area that has garnered the most attention from foreign companies is enforcement of China’s antitrust law, known as the Antimonopoly Law (AML). In recent months, the press and the public have paid considerable attention to this issue. While both foreign and domestic companies have been targets of investigations, foreign companies appear to have faced increasing scrutiny in recent months. Eighty-six percent of companies are at least somewhat concerned about these issues, with over half specifically citing enforcement as the issue, rather than the legal framework for the law (Fig. 34, 35).

Even though most American companies report that they have not been targeted with antitrust investigations, almost 30 percent of USCBC member companies are concerned they will be subjected to one. Among the most significant concerns for foreign companies are challenges with due process, lack of transparency, and fair treatment in investigations (Fig. 36, 37).

As US antitrust cases have been on the rise in the United States, they are sharply rising against Chinese and foreign companies, including US companies, in China. The recent surge in antitrust cases reaches US and foreign companies like Qualcomm, Interdigital, Microsoft, Chrysler and Mercedes-Benz.

On July 24, 2014, it was reported that the National Development and Reform Commission (“NDRC”), one of China’s three National Antitrust Agencies, announced that it had determined that US chipmaker Qualcomm is a monopoly and was suspected of overcharging and abusing its market position in wireless communication standards. The allegations could lead to record fines of more than $1 billion.

As the Chinese consumer market surges upward, Western companies are seeing their profits fall downward after this wave of antitrust cases. The China media has reported that the prices of many foreign items, including a Starbucks latte to a Jaguar sedan, are higher in China than in many other places in the world.

Chinese consumers, who now travel the World, are complaining. According to the media, although some of the prices differences are explainable by factors, such transportation, real-estate costs, higher Chinese import taxes and fragmented supply chains in which multiple distributors each add a markup, at least some multinationals allegedly have adopted sales practices in China that would not be tolerated by antitrust regulators in Europe or the US. Automobile companies do not always give their Chinese customers a choice in their purchase of spare parts, causing high prices.

What concerns the US government, however, is procedures, the heavy-handed way that investigations are being pursued, and the highly charged media coverage that makes for a very bad atmosphere for Western companies.

Foreign companies have learned two early lessons from the antitrust probes. First, the law provides little protection. The message that the National Development and Reform Commission, Chinese agency that sets pricing rules, delivers in private to multinationals at the outset of a price-fixing investigation is not to bring in their foreign lawyers. The second lesson, apparently, is resistance is futile.

In almost every antitrust case launched so far, foreign companies have settled without a fight. Voluntary price cuts of up to 20% are the norm, accompanied by board-level expressions of remorse and promises to do better. Chrysler described its abrupt decision to slash car-part prices as a “proactive response” to the price fixing probe as it got under way.

These price-fixing investigations have been accompanied by heated nationalistic rhetoric in the state media with anti-foreign overtones. Pushing down multinationals goes over well with large sections of the Chinese public that view the foreign companies as arrogant. The China Youth Daily recently stated that multinationals “pollute the environment, lie to consumers, act arrogantly when facing their wrongdoings, and ignore China’s law and protests from Chinese consumers.”

For many years that China’s Anti-Monopoly Law has been in place, enforcement has been lax, but the National Development and Reform Commission (“NDRC”) and the State Administration for Industry and Commerce (“SAIC”), the two agencies charged with enforcing the AML’s antitrust provisions, have rapidly increased enforcement over the last year, with probes into Qualcomm Inc., Microsoft, and now international automakers. The action has come at the same time as the government has voiced a broader intention to promote the creation of Chinese players in many key industries, contributing to the impression that the latest antitrust probes may have a protectionist bent.

While technically, agency decisions can be appealed to China’s administrative courts, the courts tend to defer to the agencies in all but the most blatant violations of the law. That means that as a practical matter companies don’t have the same ability to force the agencies to defend themselves in court the way firms do in the U.S. and Europe.

In response to these reports on September 21, 2014, Treasury Secretary Jack Lew sent a letter to Chinese Vice Premier Wang Yang raising serious concerns about China’s enforcement of its anti-monopoly law (AML). Sources reported that this is a sign that mounting U.S. business complaints regarding the law have reached a high political level. In commenting on the letter, Secretary Lew stated:

“But let me say that this issue of the anti-monopoly law is one that we’ve raised at the [Strategic & Economic Dialogue (S&ED)], and we made very clear that if the anti-monopoly law is used to essentially work disproportionately against U.S. and other foreign firms and it [is] used as a barrier to doing business, or an extra cost to doing business, that that was something that was very much inconsistent with the close economic relationship we’re together working to build.”

“We’ve been very clear in many forms that the anti-monopoly law is something that we see as part of this set of issues, and I certainly hope that they understand how important that issue is to us.”

Subsequently Bill Baer’s speech quoted above appeared to reinforce the statement by Secretary Lew, especially his quote that antitrust enforcement decisions must not be used to “promote domestic or industrial policy goals, protect state-owned or domestic companies from foreign competitors, or create leverage in international trade negotiations.”

The problem with the statement is that it is easy for the US Government to say. When US antidumping laws based on Alice in Wonderland surrogate values that have no relationship to actual prices and costs in China are used to block billions of dollars in Chinese imports, the Chinese government, as any government would do, is looking for leverage to force the US government to negotiate on this issue.

Chinese government officials have told me that the US government and the Commerce Department simply refuse to discuss whether China will be given market economy status in US antidumping cases as provided in the US China WTO Accession Agreement.

The US throws rocks and the Chinese government will throw rocks back.

On September 2, 2014, Foreign Ministry Spokesman Qin Gang commented on the concerns regarding China’s Anti-Monopoly Law:

The US Chamber of Commerce said that China is targeting foreign companies in its anti-monopoly investigations with opaque laws and regulations, contributing to deteriorating investment environment for foreign companies. What is China’s comment on this?

I have learned that the US Chamber of Commerce published such a report. I want to stress that China is not the only country carrying out anti-monopoly. Other countries also do it. Monopoly is opposed so as to protect consumers’ interests and create a more transparent, equal and just playing field. While carrying out anti-monopoly investigations and implementing relevant measures, relevant departments of China are strictly following the law in a transparent and impartial way.

China will, as always, encourage foreign companies and enterprises to take part in the competition in China’s market and carry out various forms of cooperation. We are willing to create a sound investment environment for them. Meanwhile, they are also required to abide by Chinese laws and regulations.

On September 8, 2014, it was reported that the US Chamber of Commerce was arguing that China’s discriminatory uses of its Anti-Monopoly was a violation of its WTO commitments. But WTO experts, including US experts, responded that the WTO’s texts and existing jurisprudence create enough uncertainty that U.S. trade authorities will likely hold off on bringing a case. Antitrust is not under the WTO and is not directly addressed in any WTO agreements.

There have been efforts to put competition rules under the WTO, but there is currently no WTO agreement in place setting obligations on WTO members with regards to the objective of their antitrust statutes. This would force the USTR to try to cherry-pick from other WTO texts. The WTO, however, has been very reluctant to expand WTO law beyond a specific agreement.

In reality, the US Chamber of Commerce argument may be an attempt to elevate the issue in the Strategic & Economic Dialogue meetings between the US and China.

AUTOMOBILES — CHRYSLER AND MICROSOFT

On September 11, 2014, the NDRC, one of the three Chinese enforcement agencies of its Anti-Monopoly law announced penalties of a combined $46 million for foreign carmakers for price-fixing. The foreign carmakers include Volkswagen AG and the China sales unit of Fiat’s Chrysler. Chrysler’s China sales unit will be fined 32 million yuan/$5 million US for operating a price monopoly.

On September 28, 2014, in a meeting with China’s State Administration for Industry and Commerce (SAIC) Microsoft Corp chief executive Satya Nadella promised to cooperate fully with Chinese authorities in their antitrust investigation into his company.

It was also reported that Director General Xu Kunlin of the NDRC, nicknamed Mr. Confession, was one the officials behind the increased tough enforcement of China’s Anti-Monopoly Law.

SEMICONDUCTORS AND MEDICAL DEVICES??

In early September, there were reports that MOFCOM had conducted antitrust unit visits to medical device and semiconductor firms in Shanghai.

ARTICLES BY CHINESE ANTITRUST LAWYER MICHAEL GU

In mid-September Michael Gu and Shuitian Yu of the Anjie Law Firm issued the attached article, GU NDRC Publishes Full Decisions in Zhejiang Car Insurance Case_AnJie_Michael Gu_20140911, “Better Late Than Never: NDRC Publishes Full Decisions on Zhejiang Car Insurance Cartel Case – Analysis of NDRC’s Antitrust Law Enforcement Approach”

TD MICROSOFT ARTICLE

In the attached August 2014 report on Chinese antitrust law by the Chinese T&D Law Firm, TD Antitrust Report, Chinese antitrust lawyer John Ren had this to say about the Microsoft case:

“On August 4, 2014, the SAIC warned Microsoft not to interfere with an ongoing anti-monopoly probe as they began inquiries into the company’s corporate Vice President Mary Snapp.

Investigators from the SAIC warned that the company must firmly abide by Chinese law, and shall not interfere with the investigation “in any way”.

SAIC confirmed that it launched a probe into Microsoft China Co., Ltd, and three of its branches in Shanghai, Guangzhou and Chengdu as Microsoft is suspected of monopoly practices.

SAIC also said Microsoft had not been fully transparent with its sales data on the software it distributes in China, including information on sales of its media player and web browser software. . . .

SAIC Investigating Accenture in Microsoft Probe

August 6, 2014

According to the report, SAIC’s probe into Microsoft expanded to Accenture on August 6 as Microsoft is under investigation.

The SAIC said in a statement that it is investigating Accenture’s office in Dalian City, Liaoning Province, for being the financial service outsourcer of Microsoft China Co., which is suspected of monopoly practices. The SAIC did not reveal results of the investigation and the probe is still underway

Microsoft’s Browsers and Players are Involved in SAIC’s Anti-Monopoly Investigation

August 27, 2014

With regard to the progress of the anti-monopoly investigation on Microsoft, Mr. Zhang Mao, the Minister of the SAIC, revealed at a press conference held by the State Council Information Office that Microsoft is suspected of inadequate disclosure of information in relation to Windows and Office and suspected problems regarding the launch and sale of Players and Browsers. Currently, the investigation on Microsoft is progressing, and the SAIC will publicize the interim results at every stage in a timely manner. Compared to its previous statements, SAIC talked about Microsoft’s potential problems on the launch and sales of Players and Browsers for the first time.

It is said that in June, 2013, some entities complained to SAIC that Microsoft’s incomplete disclosure of information on its Windows and Office Suite has caused problems with compatibility, tying, and file validation, raising suspicions that the company violated the Chinese AML. SAIC therefore investigated Microsoft, accordingly. In June of this year, SAIC initiated the investigation against Microsoft and already publicized the progress of its investigation three times. Minister Zhang also mentioned that Microsoft’s senior management has expressed that they will respect Chinese law and cooperate with the Chinese anti-monopoly authority in the investigation.”

SECURITIES

FOREIGN CORRUPT PRACTICES ACT (“FCPA”)

In a fascinating six part series on the origins of the Foreign Corrupt Practice Act, Tom Gorman, a partner in our Washington DC office and a former member of the SEC Enforcement Division, describes the origins of the FCPA and why this law came into being, including the reasons for prohibiting the bribery of foreign officials. The first part and the conclusion are published in this e-mail. The entire article is attached, TOM GORMAN ENTIRE ARTICLE ORIGINS OF FCPA.  As Tom Gorman states:

PART ONE THE ORIGINS OF THE FCPA: LESSONS FOR EFFECTIVE COMPLIANCE AND ENFORCEMENT

“They trusted us” — Judge Stanley Sporkin explaining why 450 corporations self- reported in the 1970s Volunteer Program without a promise of immunity.

This is the first part of an occasional series. The entire paper will be published by Securities Regulation Law Journal early next year.

Introduction

Can one man make a difference? Stanley Sporkin is proof that the answer is “yes.” In the early 1970s he sat fixated by the Watergate Congressional hearings. As the testimony droned on about the burglary and cover-up, the Director of the Securities and Exchange Commission’s (“SEC” or “Commission”) Enforcement Division sat mystified. Witnesses spoke of corporate political contributions and payments. “How does a public company book an illegal contribution” the Director wondered. “Public companies are stewards of the shareholder’s money – they have an obligation to tell them how it is used” he thought. He decided to find out.

The question spawned a series of “illicit” or foreign payments cases by the Commission resulting in the Volunteer Program. Under the Program, crafted by Director Sporkin and Corporation Finance Director Alan Levinson, about 450 U.S. corporations self-reported illicit payments which had been concealed with false accounting entries. There was no promise of immunity but the Director had a reputation for doing the right thing, being fair. Ultimately the cases and Program culminated with the passage of the Foreign Corrupt Practices Act (“FCPA”), signed into law by President Jimmy Carter in 1977.

Today a statute born of scandal and years of debate continues to be debated. Business groups and others express concern about the expansive application of the FCPA by enforcement officials and the spiraling costs to resolve investigations. Enforcement officials continue to call for self-reporting, cooperation and more effective compliance. While the debate continues, both sides might do well to revisit the roots of the FCPA. The success of the early investigations and the Volunteer Program is not attributable to overlapping enforcement actions, endless investigations, draconian fines and monitors. Rather, it was a focus on effective corporate governance – ensuring that executives acted as the stewards of shareholder funds. Director Sporkin called this “doing the right thing.” A return to that focus may well end the debate and yield more effective compliance and enforcement.

The beginning

The Watergate Congressional hearings transfixed the country. A scandal was born from a burglary at the Watergate Hotel in Washington, D.C. by the Committee to Reelect the President, known as CREP. The hearings were punctuated by a series of articles in The Washington Post based on conversations with a source known only as “deep throat.” Later the two reporters would become famous. President Richard Nixon would resign in disgrace. His senior aides would be sentenced to prison. See generally, Carl Bernstein & Bob Woodward, All the President’s Men (1974).

 A little-noticed segment of the hearings involved corporate contributions to politicians and political campaigns. Most observers probably missed the slivers of testimony about illegal corporate conduct since they were all but drowned in the seemingly endless testimony about the burglary, cover-up and speculation regarding the involvement of the White House.

One man did not. Then SEC Enforcement Director and later Federal Judge Stanley Sporkin was fixated. He listened carefully to the comments about corporate political contributions. The Director wondered how the firms could make such payments without telling their shareholders: “You know, I sometimes use the expression, ‘only in America could something like this happen.’ There I was sitting at my desk . . . and at night while these Watergate hearings were going on I would go home and they’d be replayed and I would hear these heads of these companies testify. This fellow Dorsey from Gulf Oil . . . and it was interesting that somebody would call Gulf Oil and they would say we need $50,000 for the campaign.

Now everybody, I knew that corporations couldn’t give money to political campaigns . . . what occurred to me was, how do you book a bribe . . . ” A Fire Side Chat with the Father of the FCPA and the FCPA Professor, Dorsey & Whitney LLP Spring Anti-corruption conference, March 23, 2014, available at www.SECHistorical.org. at 3 (“Transcript”).

What, if any information did the outside auditors have was another key question, according to the Director. Stanley Sporkin, “The Worldwide Banning of Schmiergeld: A Look at the Foreign Corrupt Practices Act on its Twentieth Birthday,” 18 Nw. J. Int. L. & Bus. 269, 271 (1998) (“Sporkin”). Not only was he fascinated by the testimony but “something bothered him [Director Sporkin]. It was the thought of all that money moving around in businessmen’s briefcases. That money belonged to corporations. Corporations belong to investors. The SEC protects investors. So Sporkin investigated.” Mike Feensilber, He Terrorizes Wall Street, The Atlanta Constitution, Section C at 19, col. 1 (March 21, 1976) . . .

An informal inquiry was initiated. As Judge Sporkin recounts: “To satisfy my curiosity [about how the payments were recorded in the books and records] I asked one of my staff members to commence an informal inquiry to determine how the transactions were booked.” Sporkin at 571. This “was not one of these elaborate investigations where you have 5 people. I called in a guy named Bob Ryan and I said, Bob, go to Gulf Oil.” Transcript at 3. A day later the answer came back: “[W]hat happened was that Gulf Oil had set up two corporations; one called the ANEX, one called the ANEY, capitalized . . . with the $5 million each; took the money back to New York, put it into [Gulf Chairman] Dorsey’s safe at the head of Gulf Oil and there he [Dorsey] had a slush fund, a corporate fund of $10 million.” Id. at 4. The payments were not reflected in the books and records of the company – the shareholders were not told how their money was being used.

It was apparent that corporate officials “knew they were doing something that was wrong because the reason they set [it] up this was . . . is because they didn’t want to expense the money so they capitalized it. And why did they want to expense the money . . . [Director Sporkin explained is] Because they were afraid, not of the SEC, but of the IRS. So it . . . right from the beginning . . . it showed me that there was something afoul here,” Director Sporkin later recounted. Id. at 4. Indeed, it was clear that senior corporate officials had painstakingly designed a methodology to secrete what they knew were wrongful transactions. Sporkin at 271. . . .

See the attached article for parts 2-5.

PART 6

Conclusion: The FCPA Today

The FCPA was unique in the world at passage. It was born of controversy and scandal. The Watergate hearings which transfixed Director Sporkin and the rest of the country spawned unprecedented and far ranging issues and questions. The hearings ushered in a new era of moral questioning.

In the turmoil of that environment Director Sporkin focused on corporate governance, viewing corporate boards and officers as stewards of investor funds. That principled view propelled the SEC investigations, enforcement actions and the Volunteer Program, all of which culminated after two years of Congressional hearings and debate in the Foreign Corrupt Practices Act.

The statute was intended to implement the principles that gave rise to its birth. It was tailored and focused:

Bribery prohibited: The anti-bribery provisions prohibit issuers and other covered persons from corruptly attempting, or actually obtaining or retaining, business through payments made to foreign officials;

Accurate books and records: The books and records provisions were designed to ensure that issuers – those using money obtained from the public – keep records in reasonable detail such that they reflect the substance of the transactions;

Auditors get the truth: Making misstatements to auditors examining the books and records of issuers was barred; and

Effective internal controls: Companies were required to have internal control provisions as an assurance that transactions with shareholder funds are properly authorized and recorded.

The impetus for the passage of the FCPA was not a novel crusade but the basic premise of the federal securities laws: Corporate managers are the stewards of money entrusted to them by the public; the shareholders are entitled to know how their money is being used.

The settlements in the early enforcement actions and the Volunteer Program were designed to implement these principles. The FCPA was written to strengthen these core values.

Today the statute continues to be surrounded by controversy. While the FCPA is no longer unique in the world, U.S. enforcement officials are without a doubt the world leaders in enforcement of the anti-corruption legislation. A seemingly endless string of criminal and civil FCPA cases continues to be brought by the Department of Justice (“DOJ”) and the SEC. The sums paid to resolve those cases are ever spiraling. What was a record-setting settlement just a few years ago is, today, not large enough to even make the list of the ten largest amounts paid to settle an FCPA case. The reach of the once focused statute seems to continually expand such that virtually any contact or connection to the United States is deemed sufficient to justify applying the Act.

For business organizations the potential of an FCPA investigation, let alone liability, is daunting. Compliance systems are being crafted and installed which often incorporate each of the latest offerings in the FCPA market place at significant expense. If there is an investigation, the potential cost of the settlement is only one component of the seemingly unknowable but surely costly morass facing the organization. Typically business organizations must deal with the demands of two regulators in this country and perhaps those of other jurisdictions. The internal investigations that are usually conducted to resolve questions about what happened are often far reaching, disruptive, continue for years and may well cost more than the settlements with the regulators. Since most companies cannot bear the strain of litigating an FCPA case, enforcement officials become the final arbitrator on the meaning and application of the statutes – arguing legal issues may well mean a loss of cooperation credit with a corresponding increase in penalties.Enforcement officials today continue to call for self-reporting as the SEC did at the outset of the Volunteer Program.

Today, however, while many companies do self-report since they may have little choice, there can be an understandable reluctance in view of the potential consequences. Indeed, self-reporting might be viewed as effectively writing a series of blank checks to law firms, accountants, other specialists and ultimately the government with little control over the amounts or when the cash drain will conclude.This is not to say that companies that have violated the FCPA should not be held accountable. They should.

At the same time it is important to recall the purpose of the statutes: To halt foreign bribery and to ensure for public companies that corporate officials are accountable as faithful stewards of shareholder money.While business organizations may express concern about enforcement, accountability begins with the company, not the government. That means installing effective compliance systems using appropriate methods, not just adopting something off the shelf or purchasing the latest offering in the FCPA compliance market place. It means programs that are effective and grounded in basic principles, not just ones that furnish good talking points with enforcement officials if there is a difficulty.

The key to effective programs is to base them on the principles of stewardship which should be the bedrock of the company culture. Accountability for the funds of the shareholders begins with effective internal controls, a key focus when the statute was passed which remains critical today. As Judge Sporkin recently commented: “The problem I see in compliance is that they are not really putting in the kinds of effort and resources that’s necessary here. And I really think that you’ve got to get your compliance department, your internal audit department working together; in too many instances you find that they’re working separately.” Transcript at 18.

The focus is also critical. These systems are not just a defense to show regulators if something goes wrong. Rather, the systems should reflect the culture of the organization. As SEC Commissioner John Evans stated as the events which led to the passage of the FCPA were unfolding:

“I am somewhat concerned that the issue of illegal and questionable corporate payments is being considered by some in a context that is too narrow, legalistic, and short-sighted. In view of the objectives of the securities laws, such as investor protection and fair and honest markets, compliance with the spirit of the law may be more meaningful and prudent than quibbling about meeting the bare minimum legal requirements. I would submit that many companies and their profession accounting and legal advisers would serve their own and the public interest by being less concerned with just avoiding possible enforcement action by the SEC or litigation with private parties and more concerned with providing disclosure consistent with the present social climate. Such a course of conduct should promote the company’s public image, its shareholder relations, its customer relations, and its business prospects . . ..” Evans at 14-15.

Accountability is also critical on the part of enforcement officials. Every case does not demand a draconian result with a large fine, huge disgorgement payments, multiple actions or a monitor. Every case need not be investigated for years at spiraling costs which may bring diminishing returns. The statutes need not be interpreted as an ever expanding rubber band with near infinite elasticity. Rather, enforcement officials would do well to revisit the remedies obtained in the early enforcement cases and those employed with great success in the Volunteer Program. And, they would do well to recall the reason 450 major corporations self-reported without a promise of immunity or an offer of cooperation credit: As Judge Sporkin said, “They trusted us.”

SECURITIES COMPLAINTS

In addition to the securities complaints filed against Chinese companies, the SEC and Chinese individuals are filing securities complaints against US companies, some of which are operated by Chinese individuals, to set up fraudulent EB5 immigration plans. EB5 allows foreign individuals to invest in certain properties in the United States that have been designated as underdeveloped and obtain a green card for a $500,000 investment in the project. The EB5 projects, however, are complicated and investors have to beware and make sure that the project they invest in is a legitimate EB5 project.

On September 3, 2014, the Securities and Exchange Commission filed the attached securities complaint, FAKE EB5 CENTER, against Justin Moongyu Lee and his partner Thomas Kent and the American Immigrant Investment Fund, Biofuel Venture, Nexland Investment Group and Nexsun Ethanol. In the complaint, the SEC states:

This case involves a scheme perpetrated by two immigration attorneys,

Defendant Justin Moongyu Lee (“J. Lee”) and his law partner Defendant Thomas Edward Kent (“Kent”), as well as J. Lee’s spouse, Defendant Rebecca Taewon Lee (“R. Lee”). J. Lee, Kent and R. Lee defrauded Chinese and Korean investors by claiming that their monies would be invested in a program that met the requirements of the United States Government EB-5 visa program, which is administered by the United States Citizenship and Immigration Service (“USCIS”), and provides immigrant investors conditional permanent residency status for a two-year period, followed by permanent residency if the required program conditions are met.

Specifically, the Defendants represented that the offered investment was EB-5 eligible, and money raised would be used to build and operate an ethanol production plant in Kansas.

On September 10, 2014, Liu Aifang and a number of Chinese individuals filed the attached class action securities complaint, ANOTHER SECURITIES COMPLAINT, against Velocity VIII Limited Partnership, Velocity 240.10b-5), Regional Center LLC, REO Group Properties, LLC, Yin Nan Wang, a.k.a Michael Wang, Yunyan Guan, a.k.a, Christine Guan, Ben Pang, REO Property 9roup’, LLC, Frank Zeng and other unnamed individuals for setting up a fraudulent EB5 project in the United States.

On September 12, 2014, Ranjit Singh filed the attached class action securities complaint against 21 Vianet Group., Inc., a company headquartered in China.  CAYMAN CORP

On September 17, 2014, Wayne Sun filed a class action securities case against 21 Vianet Group., Inc., a company headquartered in China, and several Chinese individuals. SECURITIES COMPLAINT

On September 22, 2014 the SEC filed a securities case against Zhunrize, Inc., a US company, and Jeff Pan for a fraudulent plan to raise money from investors China and Korea. PAN CHINESE INVESTORS

On September 26, 2014, David Helfenbein filed a class action securities case against Altair Nanotechnologies, a company with operations in China, Alexander Lee, Richard Lee, Guohua Sun, James Zhan, Stephen B. Huang, Paula Conroy and Karen Wagne. NANOTECHNOLOGIES

On September 29, 2014, the SEC filed a securities case against China Valves Technology, Siping Fang, Jianbo Wang, Renrui Tang for filing false and misleading documents with the SEC. SECCHINAVALVES

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

Best regards,

Bill Perry

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