US China Trade War–TPP, President Xi’s Visit to the United States, US China Trade Policy

Red Pavilion Lotus Garden Temple of Sun City Park Beijing, ChinaTRADE IS A TWO WAY STREET

“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”

PRESIDENT RONALD REAGAN, JUNE 28, 1986

US CHINA TRADE WAR NEWSLETTER OCTOBER 19, 2015

IMPORT ALLIANCE MEETINGS NOVEMBER 17TH AND 18TH WASHINGTON DC       

As indicated in more detail below, the Import Alliance will have meetings on November 17th and 18th in Washington DC. On November 17th, we will meet in our Washington DC office and then on November 18th meet with a Congressmen and Congressional Trade Staff to discuss the issues of retroactive liability of US importers in US antidumping and countervailing duty cases and market economy for China in December 2016 as provided in the US China WTO Agreement and the China WTO Agreement.

We welcome participation from US importers and US downstream customers. Please feel free to contact me or the Import Alliance directly. See the attached pamphlet for more information. FINAL IAFA_November2015_Flyer

Dear Friends,

The October blog post will be broken up into two parts. This October 15th post will comment on the TPP Agreement signed today and well as President Xi Jinping’s recent trip to the US and my impressions from Beijing, China during that period.

A second newsletter will also cover the TPP Negotiations, Trade Policy, Trade, Customs, 337, IP/patent, antitrust and securities.

On October 5th, in Atlanta Trade ministers from the U.S. and 11 other nations, including Japan, Canada, Mexico, Australia, New Zealand, Vietnam and Malaysia, reached an agreement on the Trans-Pacific Partnership (“TPP”), which will link up 40 percent of the world’s economy. President Obama cannot sign the Agreement for a minimum of 60 days after releasing the Agreement to the public. Congress cannot consider and pass the Agreement for a minimum of 30 days after that, which places Congressional passage possibly in January, the only window to consider the Agreement, before the elections heat up.

Meanwhile, from September 6 to September 27th I was in Hong Kong/Shenzhen, Shanghai and Beijing The last week in Beijing, September 21 to 26th, was very interesting because this was the period of President Xi’s trip to the United States. At the beginning of the week, in Washington State, President Xi’s visit went very well, but when President Xi came to Washington DC, the story was very different.

To read the US press in Washington DC and New York during the DC trip, it was almost like the two countries, China and the US, were on different planets with the US being on Mars (War God) and China being on Venus (Love God).

From much of the US Press point of view, President Xi’s trip was based on deception with the Chinese government having no real interest in coming to agreement on the US China trade problems on environment, cybersecurity, bilateral investment treaty and other hot button issues. In Beijing, China, however, Chinese television was truly involved in a love fest with the United States.

In the United States, we see cynicism. In China, I saw real friendship for the United States, and a determination to work with the United States in partnership based on a win-win principle that both sides must benefit from the relationship. This is the problem of the US China relationship in a nutshell. Never give any credit to China where credit is due and where they are making efforts to solve the bilateral problems.

Fortunately for the United States, China understands the importance of the US China relationship better than many US politicians and the US press. To be specific, there is more $500 billion in trade between the United States and China annually with US exports, including services, coming close to $200 billion. As stated above, trade is a two way street, and very few US politicians acknowledge the huge US exports to China, which create US jobs.

The Chinese government has agreed to do one very important thing with regards to the problems with the US government—talk about it. For the last several years, twice a year China and the US have conducted negotiations in the SED and JCCT talks. Now as a result, China will have periodic negotiations on cyber-attacks. In great contrast to Russia, China believes firmly in negotiations with the United States to iron out differences <and that is very important for the future of US China relationship.

As discussed in the next blog post, the problem with the attacks on China based on weak arguments and international trade in general is that they create a culture of international trade victimhood, blaming the foreigners and imports for the problems facing US industry and unions. That leads to protectionism, which as President Reagan stated in June 1986, leads to destructionism and the loss of jobs.

This is illustrated by the US victims of the US China Trade War as REC Silicon, a US exporter and major manufacturer of polysilicon to China, announces that it may close its US plant in Moses Lake, Washington because of the Solar Trade War with China.

Best regards,

Bill Perry

TRANS PACIFIC PARTNERSHIP FINALIZED IN ATLANTA ROUND

On October 5, 2015, in Atlanta, Georgia, Trade ministers from the U.S. and 11 other nations, including Japan, Canada, Mexico, Australia, New Zealand, Vietnam and Malaysia, announced the agreement on the Trans-Pacific Partnership, which will link up 40 percent of the world’s economy, following an exhausting round of last-minute negotiations that stretched over the weekend.

The scheduled two day session was extended by three days to deal with a number of contentious issues, including commercial exclusivity for biologic pharmaceuticals, automotive issues and market access for dairy products.

President Obama cannot sign the Agreement for a minimum of 60 days after the Agreement is published publicly. Congress cannot consider and pass the Agreement for a minimum of 30 days, after the 60 days, which places Congressional passage possibly in January. The process formally begins when President Barack Obama notifies Congress that he intends to sign the agreement and publishes it. From there, the administration will continue working to brief lawmakers on the contents of the agreement.

The release of the text will begin to determine the level of support, as many critics have long complained about secrecy of the negotiations. In another last-minute deal, Canada and Japan agreed to increase access to their tightly controlled dairy markets, allowing some American dairy products in, but New Zealand also persuaded the U.S. to accept more of its milk products. The dairy issue caught the attention of Congressional lawmakers, where Senator Ron Wyden and Representative Paul Ryan demanded that dairy producers in their states gain more access to Canadian consumers, a sensitive concession for Canada during its own election season.

Regarding currency manipulation, apparently there is a side deal to the TPP in which nations would pledge not to devalue their currencies in such a way as to gain an edge on their competitors, but it will not have any enforcement provisions. Country representatives will meet at least once a year to discuss the commitments and to try to coordinate macroeconomic policies.

In response to the Agreement, Senate Finance Committee Chairman Orrin Hatch stated:

“A robust and balanced Trans-Pacific Partnership agreement holds the potential to enhance our economy by unlocking foreign markets for American exports and producing higher-paying jobs here at home. But a poor deal risks losing a historic opportunity to break down trade barriers for American made products with a trade block representing 40 percent of the global economy. Closing a deal is an achievement for our nation only if it works for the American people and can pass Congress by meeting the high-standard objectives laid out in bipartisan Trade Promotion Authority. While the details are still emerging, unfortunately I am afraid this deal appears to fall woefully short. Over the next several days and months, I will carefully examine the agreement to determine whether our trade negotiators have diligently followed the law so that this trade agreement meets Congress’s criteria and increases opportunity for American businesses and workers. The Trans-Pacific Partnership is a once in a lifetime opportunity and the United States should not settle for a mediocre deal that fails to set high-standard trade rules in the Asia-Pacific region for years to come.”

Emphasis added.

Predictably, as soon as the deal was announced, Democratic Senator Bernie Sanders, who is running for President and bound at the hip with the labor unions, stated that the new trade deal was “disastrous,” and that he would work to defeat it. As Sanders further stated:

Wall Street and other big corporations have won again. It is time for the rest of us to stop letting multinational corporations rig the system to pad their profits at our expense. In the Senate, I will do all that I can to defeat this agreement. We need trade policies that benefit American workers and consumers, not just the CEOs of large multinational corporations.

On October 5th, Chairman Paul Ryan of the House Ways and Means Committee issued a press release, stating:

“A successful Trans-Pacific Partnership would mean greater American influence in the world and more good jobs at home. But only a good agreement—and one that meets congressional guidelines in the newly enacted Trade Promotion Authority—will be able to pass the House. I am reserving judgment until I am able to review the final text and consult with my colleagues and my constituents. In particular, I want to explore concerns surrounding the most recent aspects of the agreement. I’m pleased that the American people will be able to read it as well because TPA requires, for the first time ever, the administration to make the text public for at least 60 days before sending it to Congress for consideration. The administration must clearly explain the benefits of this agreement and what it will mean for American families. I hope that Amb. Froman and the White House have produced an agreement that the House can support.”

On October 4th and 5th, the United States Trade Representative issued a summary of the Trans Pacific Partnership, which will be attached to my blog. Some of the salient parts of the Summary are as follows:

Summary of the Trans-Pacific Partnership Agreement

On October 4, 2015, Ministers of the 12 Trans-Pacific Partnership (TPP) countries – Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, United States, and Vietnam – announced conclusion of their negotiations. The result is a high-standard, ambitious, comprehensive, and balanced agreement that will promote economic growth; support the creation and retention of jobs; enhance innovation, productivity and competitiveness; raise living standards; reduce poverty in our countries; and promote transparency, good governance, and enhanced labor and environmental protections. We envision conclusion of this agreement, with its new and high standards for trade and investment in the Asia Pacific, as an important step toward our ultimate goal of open trade and regional integration across the region.

KEY FEATURES

Five defining features make the Trans-Pacific Partnership a landmark 21st-century agreement, setting a new standard for global trade while taking up next-generation issues. These features include:

Comprehensive market access. The TPP eliminates or reduces tariff and non-tariff barriers across substantially all trade in goods and services and covers the full spectrum of trade, including goods and services trade and investment, so as to create new opportunities and benefits for our businesses, workers, and consumers.

Regional approach to commitments. The TPP facilitates the development of production and supply chains, and seamless trade, enhancing efficiency and supporting our goal of creating and supporting jobs, raising living standards, enhancing conservation efforts, and facilitating cross-border integration, as well as opening domestic markets.

Addressing new trade challenges. The TPP promotes innovation, productivity, and competitiveness by addressing new issues, including the development of the digital economy, and the role of state owned enterprises in the global economy.

Inclusive trade. The TPP includes new elements that seek to ensure that economies at all levels of development and businesses of all sizes can benefit from trade. It includes commitments to help small- and medium-sized businesses understand the Agreement, take advantage of its opportunities, and bring their unique challenges to the attention of the TPP governments. It also includes specific commitments on development and trade capacity building, to ensure that all Parties are able to meet the commitments in the Agreement and take full advantage of its benefits.

Platform for regional integration. The TPP is intended as a platform for regional economic integration and designed to include additional economies across the Asia-Pacific region.

SCOPE

The TPP includes 30 chapters covering trade and trade-related issues, beginning with trade in goods and continuing through customs and trade facilitation; sanitary and phytosanitary measures; technical barriers to trade; trade remedies; investment; services; electronic commerce; government procurement; intellectual property; labour; environment; ‘horizontal’ chapters meant to ensure that TPP fulfils its potential for development, competitiveness, and inclusiveness; dispute settlement, exceptions, and institutional provisions.

In addition to updating traditional approaches to issues covered by previous free trade agreements (FTAs), the TPP incorporates new and emerging trade issues and cross-cutting issues. These include issues related to the Internet and the digital economy, the participation of state-owned enterprises in international trade and investment, the ability of small businesses to take advantage of trade agreements, and other topics.

TPP unites a diverse group of countries – diverse by geography, language and history, size, and levels of development. All TPP countries recognize that diversity is a unique asset, but also one which requires close cooperation, capacity-building for the lesser-developed TPP countries, and in some cases special transitional periods and mechanisms which offer some TPP partners additional time, where warranted, to develop capacity to implement new obligations.

SETTING REGIONAL TRADE RULES

Below is a summary of the TPP’s 30 chapters. Schedules and annexes are attached to the chapters of the Agreement related to goods and services trade, investment, government procurement, and temporary entry of business persons. In addition, the State-Owned Enterprises chapter includes country-specific exceptions in annexes.

    • Initial Provisions and General Definitions

Many TPP Parties have existing agreements with one another. The Initial Provisions and General Definitions Chapter recognizes that the TPP can coexist with other international trade agreements between the Parties, including the WTO Agreement, bilateral, and regional agreements. It also provides definitions of terms used in more than one chapter of the Agreement.

    • Trade in Goods

TPP Parties agree to eliminate and reduce tariffs and non-tariff barriers on industrial goods, and to eliminate or reduce tariffs and other restrictive policies on agricultural goods. The preferential access provided through the TPP will increase trade between the TPP countries in this market of 800 million people and will support high-quality jobs in all 12 Parties. Most tariff elimination in industrial goods will be implemented immediately, although tariffs on some products will be eliminated over longer timeframes as agreed by the TPP Parties. The specific tariff cuts agreed by the TPP Parties are included in schedules covering all goods. The TPP Parties will publish all tariffs and other information related to goods trade to ensure that small- and medium-sized businesses as well as large companies can take advantage of the TPP. They also agree not to use performance requirements, which are conditions such as local production requirements that some countries impose on companies in order for them to obtain tariff benefits. In addition, they agree not to impose WTO-inconsistent import and export restrictions and duties, including on remanufactured goods – which will promote recycling of parts into new products. If TPP Parties maintain import or export license requirements, they will notify each other about the procedures so as to increase transparency and facilitate trade flows.

On agricultural products, the Parties will eliminate or reduce tariffs and other restrictive policies, which will increase agricultural trade in the region, and enhance food security. In addition to eliminating or reducing tariffs, TPP Parties agree to promote policy reforms, including by eliminating agricultural export subsidies, working together in the WTO to develop disciplines on export state trading enterprises, export credits, and limiting the timeframes allowed for restrictions on food exports so as to provide greater food security in the region. The TPP Parties have also agreed to increased transparency and cooperation on certain activities related to agricultural biotechnology.

    • Textiles and Apparel

The TPP Parties agree to eliminate tariffs on textiles and apparel, industries which are important contributors to economic growth in several TPP Parties’ markets. Most tariffs will be eliminated immediately, although tariffs on some sensitive products will be eliminated over longer timeframes as agreed by the TPP Parties. The chapter also includes specific rules of origin that require use of yarns and fabrics from the TPP region, which will promote regional supply chains and investment in this sector, with a “short supply list” mechanism that allows use of certain yarns and fabrics not widely available in the region. In addition, the chapter includes commitments on customs cooperation and enforcement to prevent duty evasion, smuggling and fraud, as well as a textile-specific special safeguard to respond to serious damage or the threat of serious damage to domestic industry in the event of a sudden surge in imports.

    • Rules of Origin

To provide simple rules of origin, promote regional supply chains, and help ensure the TPP countries rather than non-participants are the primary beneficiaries of the Agreement, the 12 Parties have agreed on a single set of rules of origin that define whether a particular good is “originating” and therefore eligible to receive TPP preferential tariff benefits. The product-specific rules of origin are attached to the text of the Agreement. The TPP provides for “accumulation,” so that in general, inputs from one TPP Party are treated the same as materials from any other TPP Party, if used to produce a product in any TPP Party. The TPP Parties also have set rules that ensure businesses can easily operate across the TPP region, by creating a common TPP-wide system of showing and verifying that goods made in the TPP meet the rules of origin. Importers will be able to claim preferential tariff treatment as long as they have the documentation to support their claim. In addition, the chapter provides the competent authorities with the procedures to verify claims appropriately.

    • Customs Administration and Trade Facilitation . . . .

To help counter smuggling and duty evasion, the TPP Parties agree to provide information, when requested, to help each other enforce their respective customs laws.

    • Sanitary and Phytosanitary (SPS) Measures

In developing SPS rules, the TPP Parties have advanced their shared interest in ensuring transparent, non-discriminatory rules based on science, and reaffirmed their right to protect human, animal or plant life or health in their countries. The TPP builds on WTO SPS rules for identifying and managing risks in a manner that is no more trade restrictive than necessary. . . .

    • Technical Barriers to Trade (TBT)

In developing TBT rules, the TPP Parties have agreed on transparent, non-discriminatory rules for developing technical regulations, standards and conformity assessment procedures, while preserving TPP Parties’ ability to fulfill legitimate objectives. They agree to cooperate to ensure that technical regulations and standards do not create unnecessary barriers to trade. . . .

    • Trade Remedies

The Trade Remedies chapter promotes transparency and due process in trade remedy proceedings through recognition of best practices, but does not affect the TPP Parties’ rights and obligations under the WTO. The chapter provides for a transitional safeguard mechanism, which allows a Party to apply a transitional safeguard measure during a certain period of time if import increases as a result of the tariff cuts implemented under the TPP cause serious injury to a domestic industry. These measures may be maintained for up to two years, with a one-year extension, but must be progressively liberalized if they last longer than a year. . . .

    • Investment

In establishing investment rules, the TPP Parties set out rules requiring non-discriminatory investment policies and protections that assure basic rule of law protections, while protecting the ability of Parties’ governments to achieve legitimate public policy objectives. . . .

TPP Parties adopt a “negative-list” basis, meaning that their markets are fully open to foreign investors, except where they have taken an exception (non-conforming measure) in one of two country specific annexes: (1) current measures on which a Party accepts an obligation not to make its measures more restrictive in the future and to bind any future liberalization, and (2) measures and policies on which a Party retains full discretion in the future. . . .

    • Cross-Border Trade in Services

Given the growing importance of services trade to TPP Parties, the 12 countries share an interest in liberalized trade in this area. TPP includes core obligations found in the WTO and other trade agreements . . . .

    • Financial Services

The TPP Financial Services chapter will provide important cross-border and investment market access opportunities, while ensuring that Parties will retain the ability to regulate financial markets and institutions and to take emergency measures in the event of crisis. The chapter includes core obligations found in other trade agreements . . . . In addition, the TPP includes specific commitments on portfolio management, electronic payment card services, and transfer of information for data processing.

The Financial Services chapter provides for the resolution of disputes relating to certain provisions through neutral and transparent investment arbitration. It includes specific provisions on investment disputes related to the minimum standard of treatment, as well as provisions requiring arbitrators to have financial services expertise, and a special State-to-State mechanism to facilitate the application of the prudential exception and other exceptions in the chapter in the context of investment disputes. . . .

    • Temporary Entry for Business Persons

The Temporary Entry for Business Persons chapter encourages authorities of TPP Parties to provide information on applications for temporary entry, to ensure that application fees are reasonable, and to make decisions on applications and inform applicants of decisions as quickly as possible. TPP Parties agree to ensure that information on requirements for temporary entry are readily available to the public, including by publishing information promptly and online if possible, and providing explanatory materials. The Parties agree to ongoing cooperation on temporary entry issues such as visa processing. Almost all TPP Parties have made commitments on access for each other’s business persons, which are in country-specific annexes.

    • Telecommunications

TPP Parties share an interest in ensuring efficient and reliable telecommunications networks in their countries. . . .

    • Electronic Commerce

In the Electronic Commerce chapter, TPP Parties commit to ensuring free flow of the global information and data that drive the Internet and the digital economy, subject to legitimate public policy objectives such as personal information protection. The 12 Parties also agree not to require that TPP companies build data centers to store data as a condition for operating in a TPP market, and, in addition, that source code of software is not required to be transferred or accessed. The chapter prohibits the imposition of customs duties on electronic transmissions, and prevents TPP Parties from favoring national producers or suppliers of such products through discriminatory measures or outright blocking. . . .

    • Government Procurement

TPP Parties share an interest in accessing each other’s large government procurement markets through transparent, predictable, and non-discriminatory rules. In the Government Procurement chapter, TPP Parties commit to core disciplines of national treatment and non-discrimination. They also agree to publish relevant information in a timely manner, to allow sufficient time for suppliers to obtain the tender documentation and submit a bid, to treat tenders fairly and impartially, and to maintain confidentiality of tenders. . . ..

    • Competition Policy

TPP Parties share an interest in ensuring a framework of fair competition in the region through rules that require TPP Parties to maintain legal regimes that prohibit anticompetitive business conduct, as well as fraudulent and deceptive commercial activities that harm consumers. . . . TPP Parties agree to adopt or maintain national competition laws that proscribe anticompetitive business conduct and work to apply these laws to all commercial activities in their territories. . . .

The chapter is not subject to the dispute settlement provisions of the TPP, but TPP Parties may consult on concerns related to the chapter.

    • State-Owned Enterprises (SOEs) and Designated Monopolies

All TPP Parties have SOEs, which often play a role in providing public services and other activities, but TPP Parties recognize the benefit of agreeing on a framework of rules on SOEs. The SOE chapter covers large SOEs that are principally engaged in commercial activities. Parties agree to ensure that their SOEs make commercial purchases and sales on the basis of commercial considerations, except when doing so would be inconsistent with any mandate under which an SOE is operating that would require it to provide public services. They also agree to ensure that their SOEs or designated monopolies do not discriminate against the enterprises, goods, and services of other Parties. Parties agree to provide their courts with jurisdiction over commercial activities of foreign SOEs in their territory, and to ensure that administrative bodies regulating both SOEs and private companies do so in an impartial manner. TPP Parties agree to not cause adverse effects to the interests of other TPP Parties in providing non-commercial assistance to SOEs, or injury to another Party’s domestic industry by providing non-commercial assistance to an SOE that produces and sells goods in that other Party’s territory. TPP Parties agree to share a list of their SOEs with the other TPP Parties and to provide, upon request, additional information about the extent of government ownership or control and the non-commercial assistance they provide to SOEs. There are some exceptions from the obligations in the chapter, for example, where there is a national or global economy emergency, as well as country-specific exceptions that are set out in annexes.

    • Intellectual Property

TPP’s Intellectual Property (IP) chapter covers patents, trademarks, copyrights, industrial designs, geographical indications, trade secrets, other forms of intellectual property, and enforcement of intellectual property rights, as well as areas in which Parties agree to cooperate. The IP chapter will make it easier for businesses to search, register, and protect IP rights in new markets, which is particularly important for small businesses.

The chapter establishes standards for patents, based on the WTO’s TRIPS Agreement and international best practices. On trademarks, it provides protections of brand names and other signs that businesses and individuals use to distinguish their products in the marketplace. The chapter also requires certain transparency and due process safeguards with respect to the protection of new geographical indications, including for geographical indications recognized or protected through international agreements. These include confirmation of understandings on the relationship between trademarks and geographical indications, as well as safeguards regarding the use of commonly used terms. . . .

In addition, the chapter contains pharmaceutical-related provisions that facilitate both the development of innovative, life-saving medicines and the availability of generic medicines, taking into account the time that various Parties may need to meet these standards. . . .

Finally, TPP Parties agree to provide strong enforcement systems, including, for example, civil procedures, provisional measures, border measures, and criminal procedures and penalties for commercial-scale trademark counterfeiting and copyright or related rights piracy. In particular, TPP Parties will provide the legal means to prevent the misappropriation of trade secrets, and establish criminal procedures and penalties for trade secret theft, including by means of cyber-theft, and for cam-cording.

    • Labour

All TPP Parties are International Labour Organization (ILO) members and recognize the importance of promoting internationally recognized labour rights. TPP Parties agree to adopt and maintain in their laws and practices the fundamental labour rights as recognized in the ILO 1998 Declaration, namely freedom of association and the right to collective bargaining; elimination of forced labour; abolition of child labour and a prohibition on the worst forms of child labour; and elimination of discrimination in employment. They also agree to have laws governing minimum wages, hours of work, and occupational safety and health. These commitments also apply to export processing zones. The 12 Parties agree not to waive or derogate from laws implementing fundamental labour rights in order to attract trade or investment, and not to fail to effectively enforce their labour laws in a sustained or recurring pattern that would affect trade or investment between the TPP Parties. In addition to commitments by Parties to eliminate forced labour in their own countries, the Labour chapter includes commitments to discourage importation of goods that are produced by forced labour or child labour, or that contain inputs produced by forced labour, regardless of whether the source country is a TPP Party.

Each of the 12 TPP Parties commits to ensure access to fair, equitable and transparent administrative and judicial proceedings and to provide effective remedies for violations of its labour laws. They also agree to public participation in implementation of the Labour chapter, including establishing mechanisms to obtain public input.

The commitments in the chapter are subject to the dispute settlement procedures laid out in the Dispute Settlement chapter. To promote the rapid resolution of labour issues between TPP Parties, the Labour chapter also establishes a labour dialogue that Parties may choose to use to try to resolve any labour issue between them that arises under the chapter. This dialogue allows for expeditious consideration of matters and for Parties to mutually agree to a course of action to address issues. The Labour chapter establishes a mechanism for cooperation on labour issues, including opportunities for stakeholder input in identifying areas of cooperation and participation, as appropriate and jointly agreed, in cooperative activities.

    • Environment

As home to a significant portion of the world’s people, wildlife, plants and marine species, TPP Parties share a strong commitment to protecting and conserving the environment, including by working together to address environmental challenges, such as pollution, illegal wildlife trafficking, illegal logging, illegal fishing, and protection of the marine environment. The 12 Parties agree to effectively enforce their environmental laws; and not to weaken environmental laws in order to encourage trade or investment. . . .

The chapter is subject to the dispute settlement procedure laid out in the Dispute Settlement chapter. . . .

    • Cooperation and Capacity Building . . ..
    • Competitiveness and Business Facilitation

The Competitiveness and Business Facilitation chapter aims to help the TPP reach its potential to improve the competitiveness of the participating countries, and the Asia-Pacific region as a whole. . . .

    • Development

The TPP Parties seek to ensure that the TPP will be a high-standard model for trade and economic integration, and in particular to ensure that all TPP Parties can obtain the complete benefits of the TPP, are fully able to implement their commitments, and emerge as more prosperous societies with strong markets. . . .

    • Small- and Medium-Sized Enterprises

TPP Parties have a shared interest in promoting the participation of small- and medium-sized enterprises in trade and to ensure that small- and medium-sized enterprises share in the benefits of the TPP. . . .

    • Regulatory Coherence

TPP’s Regulatory Coherence chapter will help ensure an open, fair, and predictable regulatory environment for businesses operating in the TPP markets by encouraging transparency, impartiality, and coordination across each government to achieve a coherent regulatory approach. . . .

    • Transparency and Anti-Corruption

The TPP’s Transparency and Anti-Corruption chapter aims to promote the goal, shared by all TPP Parties, of strengthening good governance and addressing the corrosive effects bribery and corruption can have on their economies. . . .

    • Administrative and Institutional Provisions

The Administrative and Institutional Provisions Chapter sets out the institutional framework by which the Parties will assess and guide implementation or operation of the TPP, in particular by establishing the Trans-Pacific Partnership Commission, composed of Ministers or senior level officials, to oversee the implementation or operation of the Agreement and guide its future evolution. This Commission will review the economic relationship and partnership among the Parties on a periodic basis to ensure that the Agreement remains relevant to the trade and investment challenges confronting the Parties.. . .

    • Dispute Settlement

The Dispute Settlement chapter is intended to allow Parties to expeditiously address disputes between them over implementation of the TPP. TPP Parties will make every attempt to resolve disputes through cooperation and consultation and encourage the use of alternative dispute resolution mechanisms when appropriate. When this is not possible, TPP Parties aim to have these disputes resolved through impartial, unbiased panels. The dispute settlement mechanism created in this chapter applies across the TPP, with few specific exceptions. . . .

Should consultations fail to resolve an issue, Parties may request establishment of a panel, which would be established within 60 days after the date of receipt of a request for consultations or 30 days after the date of receipt of a request related to perishable goods. Panels will be composed of three international trade and subject matter experts independent of the disputing Parties, with procedures available to ensure that a panel can be composed even if a Party fails to appoint a panelist within a set period of time. These panelists will be subject to a code of conduct to ensure the integrity of the dispute settlement mechanism. . . .

To maximize compliance, the Dispute Settlement chapter allows for the use of trade retaliation (e.g., suspension of benefits), if a Party found not to have complied with its obligations fails to bring itself into compliance with its obligations. Before use of trade retaliation, a Party found in violation can negotiate or arbitrate a reasonable period of time in which to remedy the breach.

    • Exceptions

The Exceptions Chapter ensures that flexibilities are available to all TPP Parties that guarantee full rights to regulate in the public interest, including for a Party’s essential security interest and other public welfare reasons. This chapter incorporates the general exceptions provided for in Article XX of the General Agreement on Tariffs and Trade 1994 to the goods trade-related provisions, specifying that nothing in the TPP shall be construed to prevent the adoption or enforcement by a Party of measures necessary to, among other things, protect public morals, protect human, animal or plant life or health, protect intellectual property, enforce measures relating to products of prison labour, and measures relating to conservation of exhaustible natural resources. . . .

In addition, it specifies that no Party is obligated to furnish information under the TPP if it would be contrary to its law or public interest, or would prejudice the legitimate commercial interests of particular enterprises. A Party may elect to deny the benefits of Investor-State dispute settlement with respect to a claim challenging a tobacco control measure of the Party.

    • Final Provisions

The Final Provisions chapter defines the way the TPP will enter into force, the way in which it can be amended, the rules that establish the process for other States or separate customs territories to join the TPP in the future, the means by which Parties can withdraw, and the authentic languages of the TPP. It also designates a Depositary for the Agreement responsible for receiving and disseminating documents.   . . .

IMPRESSIONS OF CHINESE PRESIDENT XI’S TRIP TO THE US—VIEWS FROM BEIJING

During most of September I was in China, and in Beijing during the key week of September 21 to 26th. Watching the US press and listening to US politicians in Washington DC during President Xi’s visit as compared to the Press in China was like watching people on different planets. In the United States, news outlets and politicians were very bellicose, very cynical, and expecting China simply to trick the US and out negotiate them. Shades of Donald Trump. In direct and distinct contrast, China was having a love fest with the United States.

In the United States, especially before and after the Washington DC trip, commentators and newspapers attacked China on cyber-hacking, currency manipulation, foreign policy and every other rock that could be thrown at China.

During that same week that President Xi was in China, Chinese speaking television was running a TV series to every day Chinese, somewhat like Roots, entitled Life and Death Commitment. The series was about how during the War against Japan, which became the Second World War, 100s if not 1,000s of Chinese peasants gave their lives to protect a specific American Flying Tiger pilot that had been shot down. The series showed entire villages and families executed by the Japanese for refusing to reveal the whereabouts of the American pilot. What made the series so powerful is that it is based on a true story.

I realized how powerful an impact this series was having on Chinese people because on Friday September 25th while climbing a mountain at the Red Snail Temple outside Beijing with a Group of Chinese, at a pavilion we ran into a Chinese peasant looking for plastic bottles. He immediately asked the Chinese in my Group, where is the foreigner from. They answered United States and he got excited and said “Flying Tiger”.

As President Xi mentioned in his Seattle speech, China will not forget the sacrifice of American lives in World War 2 against Germany and Japan. Even before World War 2, however, there were many examples of the United States coming to the aide of China. In the early 1900s, the United States was the only foreign country to pay China back for money paid as reparations by the Chinese government as a result of the Boxer rebellion. The US used the Chinese reparations money to establish a famous Chinese university and hospital in Beijing and send Chinese to study in the US. In other words, based on history, the Chinese truly like Americans, and that is a fundamental reason and basis for future US/China cooperation.

In contrast, I was told by one Chinese that Russia and China simply use each other. There is no trust between China and Russia. In the early 1950, because Chairman Mao refused to follow the commands of Joseph Stalin, Russia pulled out of China, destroying all the instruction books to the machinery, rail cars and other products provided to China. That action plus the Great Leap Forward led to a famine in China in which millions died. Chinese do not forget.

In contrast to Washington DC, high tech companies and businessmen in Washington State were very welcoming to President Xi, listening to his every word, because for Washington State China is its largest export market with $20 billion in exports every year to China and that is not just Boeing airplanes.

US High tech companies are making billions in China selling their products and consumer technology to China. Qualcomm’s income was $10 billion with $5 billion coming from China. On the plane to China, I sat next to a Marketing official from a large high tech company that was selling touch screen products to China. He told me that he was on the plane to China every other week.

While in China, on the CCTV English channel I saw one US Administration official stating that we see the US China relationship is “too big to fail”. At least someone in the US government and Obama Administration understands the importance of the US China relationship. In the Bush Administration, Treasury Secretary Paulson stated that he believed the US China relationship was the most important economic relationship in the World.

During my trip to Beijing, Chinese English TV was following the President Xi trip closely putting specific emphasis on the dialogue between the United States. I became convinced that China truly believes in a Win Win situation for China and the United States and that is not just a slogan.

Before President Xi’s trip to China, one article featured a panda and Uncle Sam walking arm and arm together. On September 27, the Chinese Global Times reported on the front page:

China and the US have agreed to continue building a new model for major country relationship based on mutual cooperation. . . .Aside from agreeing to build a new model for major-country relationship, the two countries said they would maintain close communication and exchanges at all levels, further expand practical cooperation at bilateral, regional and global levels and manage differences to a constructive way to achieve new concrete results in Sino-US relations. . . .

Another article in the Global Times urged the United States to reciprocate China’s goodwill. But the cynicism of many in the US press and US politicians seemed to undercut much of the Chinese goodwill.

President Xi’s US trip started well in Seattle. On Tuesday, September 22, 2015, at a speech in Seattle, Henry Kissinger introduced President Xi by stating that his vision of a Win Win scenario, which emphasizes the economic interdependence of China and the United States based on mutual interests and importance of the economic development of the other country was very important. Kissinger specifically stated that partnership between two potential advisories can replace antagonism between them.

As President Xi further indicated in his speech, he understands how important the US China relationship is and his government will do everything in their power to maintain it. President Xi specifically stated in Seattle:

. . . Washington is the leading state in U.S. exports to China and China is the No. 1 trading partner of the Port of Seattle. Washington and Seattle have become an important symbol of the friendship between Chinese and American people and the win-win cooperation between the two countries. As the Chinese saying goes, the fire burns high when everyone brings wood to it. It is the love and care and hard work of the national governments, local authorities, friendly organizations, and people from all walks of life in those countries that have made China-U.S. relations flourish. . . .

Ladies and gentlemen, dear friends. Since the founding of the People’s Republic, especially since the beginning of reform and opening up, China has set out on an extraordinary journey. The Chinese of my generation have had some first-hand experience. Toward the end of the 1960s, when I was in my teens, I was sent from Beijing to work as a peasant in a small village, where I spent seven years. At that time, the villagers and I lived in earth caves and slept on earth beds. Life was very hard. There was no meat in our diet for months. . . .

At the spring festival earlier this year, I returned to the village. It was a different place now. I saw black top roads. Now living in houses with bricks and tiles, the villagers had Internet access. Elderly folks had basic old-age care, and all villagers had medical care coverage. Children were in school. Of course, meat was readily available. This made me kindly aware that the Chinese dream is, after all, a dream of the people.

We can fulfill the Chinese dream only when we link it with our people’s yearning for a better life.

What has happened in [my village] is but a microcosm of the progress China has made through reform and opening up. In a little more than three decades, we have turned China into the world’s second largest economy, lifted 1.3 billion people from a life of chronic shortage, and brought them initial prosperity and unprecedented rights and dignity.

This is not only a great change in the lives of the Chinese people, but also a huge step forward in human civilization, and China’s major contribution to world peace and development.

At the same time, we are civilly-aware that China is still the world’s largest developing country. Our per capita GDP is only two-thirds that of global average and one-seventh that of the United States, ranking around 80th in the world. By China’s own standard, we still have over 70 million people living under the poverty line. If measured by world bank standard, the number would be more than 200 million. . . .

During the past two years, I have been to many poor areas in China and visited many poor families. I wouldn’t forget the look in their eyes longing for distant, happy life.

I know that we must work still harder before all our people can live a better life. That explains why development remains China’s top priority. To anyone charged with the governance of China, their primary mission is to focus all the resources on improving people’s living standard and gradually achieve common prosperity. To this end, we have proposed the two centenary goals mentioned by Dr. Kissinger, namely to double the 2010 GDP and per capita income of the Chinese and complete the building of a moderately prosperous society by 2020 and to build a prosperous, strong, democratic … harmonious, modernist socialist country that realizes the great renew of the Chinese nation by the middle of the century.

Whatever we do now is aimed at fulfilling these goals. To succeed in completing the building of a moderately prosperous society in all respects, we must comprehensively deepen reform, advance the law-based governance, and apply strict … discipline. That is what our proposed 4-pronged strategy is all about. . . .

China’s economy will stay on a steady course with fairly fast growth. The Chinese economy is still operating within a proper range. It grew by 7 percent in the first half of this year, and this growth rate remains one of highest in world. It has not come by easily, given the complex and volatile situation in world economy. At present, all economies are facing difficulties, and our economy is also under downward pressure. But this is only a problem in the course of progress. It will take … steps to achieve stable growth, deepen reform, adjust structure, improve livelihood, and prevent risks while strengthening and innovating macro-regulation to keep the growth at medium-to-high rate.

Currently, China is continuing to move forward in this new type of industrialization, digitalization, urbanization, and agricultural modernization. With a high savings rate, a huge consumption potential, a hard working population, and a rising proportion of middle income people — now we have 300 million middle income earnings in China — China enjoys enormous space … to grow in terms of market size and potential. China will focus more on improving the quality and efficiency of economic growth, and accelerating the shift of growth model and adjustment in economic structure. I will lay greater emphasis on innovation and consumption-driven growth — in this way, we will solve the problem of unbalanced, uncoordinated, and unsustainable development, and enable the Chinese economy to successfully transform itself and maintain strong momentum of growth.

Recent abnormal ups and downs in China’s stock market has caused wide concern. Stock prices fluctuating accordance with your inherent laws and it is the duty of the government to ensure an open, fair, and just market order and prevent massive panic from happening. This time, the Chinese government took steps to stabilize the market and contain panic in the stock market, and thus avoided the systemic risk. Mature markets in various countries have tried similar approaches. Now, China’s stock market has reached the phase of self-recovery, and self-adjustment.

On the 11th of August, China moved to improve its RMB central parity quotation mechanism, giving the market a greater role in determining the exchange rates. Our efforts have achieved initial success in correcting the exchange rate deviation. Given the economic and financial situation at home and abroad, there is no basis for continuous depreciation of the RMB. We will stick to the purpose of our reform to have the exchange rate decided by market supply and demand and allow the RMB to float both ways. We are against competitive depreciation or a currency war. We will not lower the RMB exchange rate to boost export. To develop the capital market and improve the market-based pricing of the RMB exchange, is the direction of our reform. This will not be changed by the recent fluctuation in the stock market.

The key to China’s development lies in reform. Our reform is aimed at modernizing the country’s governance system, and governance capabilities so that the market can play a decisive role in the allocation of resources. The government can play a better role and there is faster progress in building the socialist market economy, democracy, advanced culture, harmonious society, and soundly environment. . . .

We have the results and guts to press ahead, and take reform forward. We will stick to the direction of market economy reform and continue to introduce bold and result-oriented reform measures concerning the market, taxation, finance, investment and financing, pricing, opening up, and people’s livelihood.

China will never close its open door to the outside world. Opening up is a basic state policy of China. Its policies that attract foreign investment will not change, nor will its pledge to protect legitimate rights and interests of foreign investors in China, and to improve its services for foreign companies operating in China. We respect the international business norms and practice of non-discrimination, observe the …principle of national treatment commitment, treat all market players — including foreign-invested companies — fairly, and encourage transnational corporations to engage in all forms of cooperation with Chinese companies.

We will address legitimate concerns of foreign investors in timely fashion, protect their lawful rights and interests, and work hard to provide an open and transparent legal and policy environment, an efficient administrative environment, and a level playing field in the market, with a special focus on IPR protection so as to broaden the space of cooperation between China and the United States and other countries.

China will follow the basic strategy of the rule of law in governance. Law is the very foundation of governance. We will coordinate our efforts to promote the rule of law in governance and administration, for the building of the country, the government and society on solid basis of the rule of law, build greater trust in judicial system, and ensure that human rights are respected and effectively upheld. China will give fair treatment to foreign institutions and foreign companies in the country’s legislative, executive, and judicial practices. We are ready to discuss rule of law issues with the U.S. side in the spirit of mutual learning for common progress.

China is a staunch defender of cybersecurity. It is also a victim of hacking. The Chinese government will not, in whatever form, engage in commercial thefts or encourage or support such attempts by anyone. Both commercial cyber theft and hacking against government networks are crimes that must be punished in accordance with law and relevant international treaties. The international community should, on the basis of mutual respect and mutual trust, work together to build a peaceful, secure, open, and cooperative cyberspace. China is ready to set up a high-level joint dialogue mechanism with United States on fighting cyber crimes. . . .

China will continuing fighting corruption. As I once said, one has to be very strong if he wants to strike the iron. The blacksmith referred to here is the Chinese communist party. The fundamental aim of the party is to serve the people’s heart and soul. The party now has over 87 million members and unavoidably, it has problems of one kind or another. If we let these problems go unchecked we will risk losing the trust and support of the people. That is why we demand strict enforcement of party discipline as the top priority of governance. In our vigorous campaign against corruption, we have punished both tigers and flies —corrupt official — irrespective of ranking, in response to our people’s demand. This has nothing to do with power struggle. In this case, there is no House of Cards. . . .

China will keep to the path of peaceful development. We have just celebrated the 70th anniversary of the victory of the Chinese people’s resistance against Japanese aggression and the world anti-fascist war.

An important lesson history teaches us is that peaceful development is the right path, while any attempt to seek domination or hegemony through force is against the historical trend and doomed to failure.

The Chinese recognized as early as 2,000 years ago that though a country is now strong, bellicosity will lead to its ruin. China’s defense policy is defensive in nature and its military strategy features active defense. Let me reiterate here that no matter how developed it could become, China will never seek hegemony or engage in expansion.

To demonstrate our commitment to peaceful development, I announced not long ago that the size of China’s military will be cut by 300,000. China is ready to work with other countries to build a new type of international relations with win-win cooperation at its core, replacing confrontation and domination with win-win cooperation and adopting a new thinking of building partnerships so as to jointly open a new vista of common development and shared security.

As far as the existing international system is concerned, China has been a participant, builder, and contributor. We stand firmly for the international order and system that is based on the purposes and principles of the UN charter. . . .

China has benefitted from the international community and development, and China has in turn made its contribution to global development. Our Belt and Road initiative, our establishment of the Silk Road fund, and our proposal to set up the AAIB, are all aimed at helping the common development of all countries, rather than seeking some kind of spheres of political influence. The Belt and Road initiative is open and inclusive; we welcome participation of the U.S. and other countries, and international organizations.

We have vigorously promoted economic integration in the Asia Pacific and the Free Trade area of the Asia Pacific in particular because we want to facilitate the shaping of a free, open, convenient, and dynamic space for development in the Asia Pacific. We … for an outlook of common, comprehensive, cooperative, and sustainable security because we want to work with other countries in the region and the rest of the international community to maintain peace and security in the Asia Pacific.

Ladies and gentlemen, dear friends. In our Sunnylands meeting in 2013, President Obama and I reached the important agreement to jointly build a new model of major country relationship between the two countries.

This was a major strategic choice we made together on the basis of historical experience, our respective national conditions and the prevailing trend of world. Over past two years and more, the two sides have acted in accordance, with the agreement steadily moving forward by actual coordination and cooperation in various fields, and made important progress. We worked hand-in-hand to cope with aftermath of international financial crisis and promoted global economic recovery. We deepened pragmatic exchanges and cooperation in all fields, which brought about tangible benefits to the two people’s. Last year, actual trade, two-way investment stock, and total number of personnel exchanges all hit a record high. . . .

As an old Chinese saying goes, peaches and plums do not talk, yet a path is formed beneath them. These worthy fruits of cooperation across the Pacific Ocean speaks eloquently to the vitality and potential of China-U.S. relations.

This leads to the question: What shall we do to advance the new model of major country relationship between China and the U.S. from a new starting point and how we can work together to promote world peace and development. The answer is to stick to the right direction of such a new model of relationship and make gradual, solid progress.

An ancient Chinese said, after taking into account the past, the future, and the normal practices, a decision can be made.

A number of things are particularly important for our efforts. First, we must read each other’s strategic intentions correctly. Building a new model of major country relationship with the United States that features no confrontation, no conflicts, mutual respect and willing cooperation is the priority of China’s foreign policy. We want to deepen mutual understanding with the U.S. on each other’s strategic orientation and development path. We want to see more understanding and trust; less estrangement and suspicion in order to … misunderstanding and miscalculation.

We should strictly base our judgment on facts, lest we become victim to hearsay, paranoid, or self-imposed bias. … Should major countries time and again make the mistakes of strategic miscalculation, they might create such traps for themselves.

Second, we must firmly advance win-win cooperation. Cooperation is the only right choice to bring about benefits, but cooperation requires mutual accommodation of each other’s interest and concerns, and the quest of the great common ground of converging interest. If China and the U.S. cooperate well, they can become a bedrock of global stability and a booster of world peace. Should they enter into conflict or confrontation, it would lead to disaster for both countries and the world at large.

The areas where we should and can cooperate are very broad. For instance, we should help improve the global governance mechanism and work together to promote sustained growth of world economy and maintain stability in the global financial market.

We should conclude as soon as possible a balanced and high quality BIT, deepen the building of a new type of mill-to-mill relations, expand pragmatic cooperation on clean energy and environmental protection, strengthen exchanges in law enforcement, anti-corruption, health, and local affairs, and tap the corporation potential in infrastructural development. We should deepen communication and cooperation at the United Nations A-PEC, G-20, and other multi-electoral mechanisms, as well as our major international and regional issues and global challenges so as to make a bigger contribution to world peace, stability, and prosperity.

Third, we must manage our differences properly and effectively. As a Chinese saying goes, the sun and moon shine in different ways yet their brightness is just right for the day and night, respectively. It is precisely because of so many differences that the world has become such a diverse and colorful place, and that the need to broaden common ground and iron out differences has become so important. A perfect, pure world is non-existent, since disagreements are a reality people have to live with. China and the U.S. do not see eye to-eye on every issue and it is unavoidable that we may have different positions on some issues. What matters is how to manage the differences and what matters most is that we should respect each other, seek common ground while reserving differences, take a constructive approach to understanding … and spare no effort to turn differences into areas of cooperation.

Fourth, we must foster friendly sentiments among the peoples. People-to-people relations underpin state-to state relations. Though geographically far apart, our peoples boast a long history of friendly exchanges.

Some 230 years ago, Empress of China, a U.S. merchant ship, sailed across the vast oceans to the shores of China. Some 150 years ago, tens of thousands of Chinese workers joined their American counterparts in building the Transcontinental Pacific Railway. Some 30 years ago, China and the United States, as allies in World War II, fought shoulder-to-shoulder to defend world peace and justice. In that war, thousands of American soldiers laid down their precious lives for the just cause of the Chinese people.

We will never forget the moral support and invaluable assistance the American people gave to our just resistance against aggression and our struggle for freedom and independence. The Chinese people have always held American entrepreneurship and creativity in high regards. . . .

I believe it’s always important to make an effort to get deep a understanding of the cultures and civilizations that are different from our own. The Chinese character Ren, or people, is in a shape of two strokes supporting each other. The foundation of the China-U.S. friendship has its roots in the people and its future rests with the youth. . . .

Ladies and gentlemen. Dr. Kissinger wrote in his book, World Order, that, and I quote, each generation will be judged by whether the greatest and most consequential issues of the human condition have been faced.

And Martin Luther King said, ‘the time is always right to do the right thing. Today we have come once again to a historical juncture. Let us work together to bring about an even better future for China-U.S. relations and make an even greater contribution the happiness of our two people’s and well-being of the world.”

For the full text of President Xi’s speech, see http://www.globaltimes.cn/content/944177.shtml and http://www.chinadaily.com.cn/world/2015xivisitus/2015-09/24/content_21964069.htm To see the entire speech, go to https://www.youtube.com/watch?v=P9aQPvus8Tw.

After Seattle, President Xi flew to Washington DC.   Although Washington State is not wallowing in international trade victimhood, Washington DC is not Washington State. Just as President Xi Jinping arrived in Washington DC, John Brinkley at Forbes illustrated the hard line on China stating:

Xi Jinping In Washington: No Glad Tidings From The East

WASHINGTON — It’s hard to recall a visit to Washington by a head of state that has aroused as much apprehension and preoccupation as that of Chinese President Xi Jinping, who arrived here Thursday night.

Given the abundance of requests and demands that await him here, you might expect him to be wearing a red suit and a long white beard. But Xi has not come bearing gifts.

Issue No. 1 for the Obama administration is Chinese hacking.

China is the most prolific source of cyber-attacks against the U.S. government and business sector and it costs the U.S. economy billions of dollars every year, according to FBI Director James Comey. Xi has expressed a willingness to combat it, but he denies that his government has anything to do with it. He says China too is a victim of cyber-attacks.

Maybe so, but that’s like saying Microsoft is threatened by Atari.

Last Spring, Chinese hackers broke into the U.S. General Services Administration’s servers and stole Social Security numbers, fingerprints and other identifying data on about 4 million current and former government employees.

President Obama is incensed about this and is expected to read the riot act to Xi. Given the pervasiveness of the problem, though, even Xi’s best efforts are not going to solve it or even make a dent in it anytime soon.

China also leads the world in counterfeiting of consumer products and intellectual property theft. It accounts for 50% to 80% of all IP theft from the United States, according to the Commission on the Theft of American Intellectual Property.

Since arriving in Seattle on Tuesday, Xi has been getting an earful about this and he’ll get more when he comes to Washington, D.C.  . . .

China recently devalued its currency, the renminbi, against the dollar and that caused the American anti-trade camp to scream bloody murder. They said it was a blatant ploy to make Chinese exports to the U.S. cheaper and U.S. exports to China more expensive. A gazillion American jobs would be lost as a result.

They couldn’t have been more wrong. Xi said in a speech in Seattle on Tuesday that the renminbi had been devalued “in order to stabilize the market and contain panic in the stock market,” not to increase exports. “We are against competitive depreciation or a currency war,” he said. “We will not lower the RMB exchange rate to boost exports.” We should take him at his word.

China’s human rights performance continues to be deplorable, but Xi doesn’t seem willing to acknowledge this. His predecessors, when criticized about human rights violations, usually said: mind your own business. Xi’s rhetoric has not been much of an improvement. In Seattle, he said the government would “ensure that human rights are respected and effectively upheld.” Isn’t that comforting? . . . .

One might expect a meeting between the leaders of the world’s two largest economies to produce some tangible outcomes. Don’t bet on it. More likely, they’ll say they had “frank and fruitful” discussions, made “good progress” (isn’t all progress good?), and agreed on “a way forward.”

Making measurable progress on cyber-attacks and intellectual property theft will take years, maybe decades.

Unlike other heads of state, Xi considers his country to be America’s equal. So, he won’t be cowing to Obama or expressing contrition.

On the bright side, Xi is hell-bent on stamping out corruption in his government. That might be a better reason for hope than anything that might transpire during his two days in Washington.

For full article, see http://www.forbes.com/sites/johnbrinkley/2015/09/25/xi-jinping-in-washington-no-glad-tidings-from-the-east/.

The Brinkley Article was followed by strong US press attacks on the Cyber Agreement between the US and China. On September 26, 2015, the International New York Times in an Editorial stated as follows:

DOUBLE TALK FROM CHINA

The Xi government has a long way to go in protecting the rights of foreign companies and fighting cybercrime. . . .

Chinese officials are believed to be behind some of the .many cyberattacks against American companies and government agencies. Some of these hackers clearly work for the government and are stealing corporate secrets to help Chinese companies, American officials and cybersecurity experts say. Mr Xi’s government denies that it is involved in the attacks.

Aside from cybersecurity issues, the Xi government has also proposed regulations that could make it impossible for American technology companies to operate there. They would be forced to store data about Chinese customers in China and provide the Chinese government backdoor access to their systems and encrypted communications.

Mr. Xi and his officials need to realize that trade and investment has to be a two-way street. Many Chinese firms are trying to expand by acquiring companies, real estate and other assets in the United States and elsewhere. But if the Xi government continues to put up roadblocks to foreign companies, China cannot expect the-rest of the world to open its doors to more investment without reciprocity.

On September 27, 2015, the Wall Street Journal stated in an editorial:

The Obama-Xi Cyber Mirage

A digital arms deal that is full of promises but no enforcement.

Not long before Xi Jinping’s state visit to Washington last week, the Obama Administration leaked that it might sanction Chinese companies and individuals for digitally plundering U.S. trade secrets and intellectual property. That followed an April executive order that declared “significant malicious cyber-enabled activities” to be a “national emergency” punishable by visa bans, asset freezes and other means.

“We’re not going to just stand by while these threats grow,” one Administration official told the Washington Post at the time. “If you think you can just hide behind borders and leap laws and carry out your activities, that’s just not going to be the case.”

Well, never mind. On Friday Presidents Xi and Obama announced a new cyber-agreement that is supposed to put the unpleasantness to rest. A White House fact sheet notes that both sides agreed that “neither country’s government will conduct or knowingly support cyber-enabled theft of intellectual property, including trade secrets or other confidential business information, with the intent of providing competitive advantages to companies or commercial sectors.”

Other steps include information exchanges; legal cooperation in investigating cybercrimes “in a manner consistent with their respective national laws”; a “high-level joint dialogue mechanism” with regularly scheduled meetings; a “hotline for the escalation of issues”; and a U.N.-influenced effort to “further identify and promote appropriate norms of state behavior in cyberspace.”

All of this is an elaborate way of saying that the two sides agreed to nothing. Though Mr. Obama hailed the deal for creating “architecture to govern behavior in cyberspace that is enforceable and clear,” it transparently is neither. Mr. Xi still insists that his government “does not engage in theft of commercial secrets in any form,” or encourage Chinese companies to do so, as he told The Wall Street Journal last week. So what’s the problem?

As for enforceability, the line about abiding by “respective national laws” gives the game away. In China the Communist Party is by definition above the law, as are the companies and entities it controls. If Mr. Xi won’t admit to the problem, his minions won’t either. Knowing this, U.S. officials will also be reluctant to disclose much of what they know about Chinese cyber-espionage abuses lest they compromise U.S. sources and methods.

All of this means the Chinese are unlikely to be deterred from engaging in the kind of cybertheft that has served them so well, such as the 2007 hack of one of the military contractors building the F-35 fighter jet, which allowed the Chinese to develop the copycat J-20 and J-31 stealth planes. Other victims of suspected Chinese cyberespionage include Canada’s once-giant Nortel Networks, which was driven into bankruptcy in 2009 partly due to the hacking, as well as media companies like Bloomberg and this newspaper.

The agreement gives Mr. Xi the opportunity to play the diplomatic games China has specialized in for years regarding the South China Sea, known to Beijing-watchers as “talk and take.” In the South China version, Beijing has become adept at negotiating endlessly with its Asian neighbors over disputed claims and codes of conduct—all while seizing control of disputed reefs, building islands, and interfering in maritime traffic. To adapt Clausewitz, diplomacy for the Chinese is the continuation of cyberespionage by other means.

The agreement also ignores China’s cyberassaults on U.S. government targets, such as last year’s mega-hack of the Office of Personnel Management. Washington may have good reasons not to codify principles that would prohibit the U.S. from responding to such an attack, but if so it would be good to know if the Administration is forgiving the OPM hack.

In his press conference with Mr. Xi, Mr. Obama said the U.S. would use sanctions and “whatever other tools we have in our tool kit to go after cybercriminals, either retrospectively or prospectively.” But nearly seven years into his Presidency, Mr. Obama isn’t famous for follow through.

The cyber accord looks like another case of Mr. Obama claiming an imaginary moral high ground that sounds tough but is likely to be unenforceable. Expect more digital theft until Beijing pays a price for it, presumably in a future U.S. Administration.

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

In response to a question from Senator Ayotte, Director Clapper also specifically admitted that the attack on OPM and theft of US government employee data is state espionage and not commercial activity, which the US also engages in. See above hearing at 1 hour 18 and 19 minutes. This illustrates the hypocrisy of much of the political attacks on China regarding cyber-attack on OPM, which are based on incorrect definitions as set down by the US government itself.

Senator McCain stated that he was astonished by Director Clapper’s statements. What is astonishing is the at Senior Senators, such as John McCain, which have engaged in relentless attacks on China, do not know the specific policy of the United States government.

During the same hearing, in response to questions from Senator Hirano of Hawaii, Administration officials stated that the Cyber Agreement with China will be very helpful if the Chinese government live up to it. As Senator Hirano stated, now we have an agreement between the US and China to talk about it. The officials stated that the Agreement is a confidence building measure because it requires annual meetings at the very high ministerial level between the United States and China at which the US Attorney General and Head of Homeland Security will participate. In other words, according to Administration officials this is a good first step.

What does this mean? It means that the US government never asked China for a comprehensive agreement to stop cyber hacking, because the US government is engaged in cyber espionage too and “we are pretty good at it. . . . People in glass houses…”. The US government may have already hacked the Chinese government and obtained all the personal information on their government workers. We simply do not and cannot know.

But more importantly, the US government did not request the Chinese government to agree to stop all cyber-attacks on the US government. What the US Government did demand on the threat of economic sanctions was for the Chinese government to stop cyber-attacks on commercial interests, including the theft of intellectual property. The Chinese government agreed, not only because of the threats of economic sanctions but also because they realize how important the US China economic/trade relationship is for China, the Chinese people and the entire World. This Agreement is just a President Xi face saving gesture. The Chinese government and people understand how important the US China economic relationship is, even if many in the US Congress and US government do not understand the reality of the situation.

What did the Chinese government specifically agree to do on Cyber crime?

As the September 25, 2015 White House Fact Sheet Press related to President Xi’s visit, which will be attached to my blog, www.uschinatradewar.com, states:

FACT SHEET: President Xi Jinping’s State Visit to the United States

On September 24-25, 2015, President Barack Obama hosted President Xi Jinping of China for a State visit. The two heads of state exchanged views on a range of global, regional, and bilateral subjects. President Obama and President Xi agreed to work together to constructively manage our differences and decided to expand and deepen cooperation in the following areas: . . .

  • Cybersecurity

The United States and China agree that timely responses should be provided to requests for information and assistance concerning malicious cyber activities. Further, both sides agree to cooperate, in a manner consistent with their respective national laws and relevant international obligations, with requests to investigate cybercrimes, collect electronic
evidence, and mitigate malicious cyber activity emanating from their territory. Both sides also agree to provide updates on the status and results of those investigation to the other side, as appropriate.

o The United States and China agree that neither country’s government will conduct or knowingly support cyber-enabled theft of intellectual property, including trade secrets or other confidential business information, with the intent of providing competitive advantages to companies or commercial sectors.

o Both sides are committed to making common effort to further identify and promote appropriate norms of state behavior in cyberspace within the international community. The United States and China welcome the July 2015 report of the UN Group of Governmental Experts in the Field of Information and Telecommunications in the Context of
International security, which addresses norms of behavior and other crucial issues for international security in cyberspace. The two sides also agree to create a senior experts group for further discussions on this topic.

o The United States and China agree to establish a high-level joint dialogue mechanism on fighting cybercrime and related issues. China will designate an official at the ministerial level to be the lead and the Ministry of Public Security, Ministry of State Security, Ministry of Justice, and the State Internet and Information Office will participate in the dialogue. The U.S. Secretary of Homeland Security and the U.S. Attorney General will co-chair the dialogue, with participation from representatives
from the Federal Bureau of Investigation, the U.S. Intelligence Community and other agencies, for the United States. This mechanism will be used to review the timeliness and quality of responses to requests for information and assistance with respect to malicious cyber activity of concern identified by either side. As part of this mechanism, both sides agree to establish a hotline for the escalation of issues that may arise in the course of responding to such requests. Finally, both sides agree that the first
meeting of this dialogue will be held by the end of 2015, and will occur twice per year thereafter.

The fact sheet lists other very important areas for further cooperation and discussion, including Nuclear Security, Strengthening Development Cooperation, 2030 Agenda for Sustainable Development. Food Security, Public Health and Global Health Security, and Humanitarian Assistance and Disaster Response. In addition, with regards to Strengthening Bilateral Relations, China and the United States agreed specifically with regard to Military Relations:

Building on the two Memoranda of Understanding on Confidence Building Measures (CBMs) signed by the United States and China in November 2014, the two sides completed new annexes on air-to-air safety and crisis communications. The two sides committed to continue discussions on additional annexes to the Notification of Major Military Activities CBM, with the United States prioritizing completion of a mechanism for informing the other party of ballistic missile launches. The U.S. Coast Guard and the China Coast Guard have committed to pursue an arrangement whose intended purpose is equivalent to the Rules of Behavior Confidence Building Measure annex on surface-to-surface encounters in the November 2014 Memorandum of Understanding between the United States Department of Defense and the People’s Republic of China Ministry of National Defense.

In other words, in distinct contrast to Russia, the Chinese government agreed to hold periodic high level meetings at the ministerial level to discuss cyber- crime and military issues with the United States. Does this sound like a country that wants to invade other countries and follow Vladimir Putin in a military expansion?

US CHINA TRADE WAR JULY 2015 TPA, TPP, TRADE POLICY, TRADE AND CUSTOMS

US Capitol North Side Construction Night Washington DC ReflectioTRADE IS A TWO WAY STREET

“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”

PRESIDENT RONALD REAGAN, JUNE 28, 1986

US CHINA TRADE WAR JULY 15, 2015

 

Dear Friends,

Because of the substantial activity in May, June and July with the passage of Trade Promotion Authority (“TPA”) and the ongoing Trans Pacific Partnership (“TPP”) negotiations, this blog post is being split into two parts.  The first part will cover trade policy, trade and Customs.  The second part will cover products liability, Patent/IP, antitrust and securities.

In May and June, Congress, both the House of Representatives and Senate,  twisted and turned itself into knots to pass TPA for the President and to keep the trade negotiations on track.

But TPA is not the end of the story.  In passing TPA through the Senate and House, Congress laid down a number of stiff negotiating objectives.  Essentially, it raised the bar for the negotiations for the Trans Pacific Partnership (“TPP”) and European negotiations of the Transatlantic Trade and Investment Partnership (“TTIP”).  Congressmen and Senators indicated that they intend to be very involved personally in the negotiations so to assume that TPP negotiations will be finished in a month, as predicted by the Austrian Trade Minister and even the United States Trade Representative (“USTR”), is simply wishful thinking.

On July 9th, however, Chairman Paul Ryan stated that an agreement could be finalized by late fall.  USTR also recently announced that there will be a major TPP negotiating round between July 24-30th in Hawaii.

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.

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

The first half of this blog post will set out the twists and turns of the TPA negotiations in the House and the Senate, along with developments in the TPP negotiations and also developments in trade and Customs law.  The second half of the blog post will cover products liability, IP/Patent, China antidumping cases, antitrust and securities.

Best regards,

Bill Perry

TRADE POLICY

TPP NEGOTIATIONS FORGE AHEAD BUT CANADA IS A STICKING POINT

On July 7th and 9th, it was reported that TPP negotiations are into their final round, but other commentators have stated that there is still a ways to go.  On July 9th in a Politico Morning Money speech, which can be found here http://www.c-span.org/video/?327014-1/politico-conversation-trade-representative-paul-ryan-rwi, Paul Ryan, House Ways and Means Chairman, stated that there could be a final TPP Agreement by late Fall.  There appears to be a very strong push to conclude the TPP Agreement by the end of Year so it does not bleed into 2016, an election year.  If TPP becomes an election issue, it could pose a very difficult political issue, especially for the Democrats and Hilary Clinton, in particular, because much of the Democratic base, such as the Unions, strongly oppose the Trade Agreements.

On July 1st, at a Politico Playbook Discussion, USTR Michael Froman stated that they hope to complete the TPP “as soon as we possibly can,” and deliver it to Congress by the end of the year.  Froman further stated:

We’re in the final stages of negotiating the Trans-Pacific Partnership.  We’re down to a reasonable number of outstanding issues, but by definition, those issues tend to be the most difficult, whether it’s on market access or on rules like intellectual property.

Froman also stated that with Japan good progress had been made on agriculture and automobiles, and “I don’t really see that as an obstacle to other progress at the moment.”  He went on to state that other issues include access to the Canadian agricultural markets and rules on intellectual property rights, investment and state-owned enterprises.

More importantly, Froman stated that the major achievement of the TPP is that there are no product-area exemptions—all product areas will be covered.  He stated that the negotiators were committed “to ensure that our exporters have commercially meaningful market access to foreign markets.”

On July 7th USTR announced that the chief negotiators and ministers of the 12 countries engaged in the TPP trade talks will meet in Maui, Hawaii at the Westin Maui Resort and Spa, with the chief negotiators meeting July 24-27 and the ministers meeting July 28-31. USTR stated that “The upcoming ministerial provides an important opportunity to build on this progress as we work to conclude the negotiation.”

With U.S. trade promotion authority (TPA) now in place, the stage is set for the U.S. and Japan to finalize their talks on nontariff barriers to U.S. autos, which includes an auto-specific dispute settlement mechanism, and for the U.S. and Canada to begin negotiating in earnest on the roughly 100 Canadian tariff lines containing dairy, poultry and eggs—items administered by a supply management system that restricts imports to protect the domestic industry.

Japanese and Canadian government officials were waiting for TPA to pass before making final offers.

One Commentator stated, however, that she does not believe that the Maui meeting will be the final TPP negotiating round.  Lori Wallach of Public Citizen stated

“There have been seven rounds since the ‘final’ TPP negotiating round and at least three ‘final’ TPP ministerials and there are many outstanding sensitive issues and now it’s clear to the other countries just how split Congress is on TPP, so whether this really is it remains to be seen.”

Wide chasms remain within several sectors potentially impacted in the 31 negotiation areas. For example, the U.S. is demanding the quota for Japan’s food-use rice imports be increased to about 175,000 tons while Japan is insisting 50,000 tons. Japan is demanding that the U.S. eliminate tariffs on Japanese auto parts manufactured in the Southeast Asian countries with which Tokyo has an economic partnership agreement. The two countries also have yet to agree on Japanese beef and pork import tariffs, though the issue is almost settled. There are still wide gaps between the 12 countries on intellectual property rights protection of pharmaceuticals data and dispute settlement on cross-border trade and investment.

In a July 14th trade publication, former USTR general counsel Warren Maruyama reinforced the skepticism about the potential conclusion of the TPP in Hawaii, stating:

I think it’s a bit of a stretch; my understanding is there are a lot of brackets.  There’s a whole bunch of difficult things.”

Moreover, a swift conclusion of the TPP would not go well with Congress.  As Maruyama further stated:

One of the expectations coming out of TPA is there’s going to be a much better process of consultations, and it’s not necessarily going to go over well if there’s some sort of a rush to agreement without adequate consultation with the Congress, particularly when you get into these sensitive sectors.

On July 7th, at the time of the announcement of the Hawaii TPA meeting, President Obama was meeting Nguyen Phu Trong, the general secretary of Vietnam, another TPP country.   President Obama noted that the TPP talks “was an excellent opportunity for us to deepen our discussion” and the trade deal has “enormous potential” for economic growth for both countries. Trong stated that U.S. and Vietnam have been able to “rise above the past.” “What is of utmost importance is we have transformed from former enemies to friends.”

Meanwhile, the New York Times reported on July 7th:

Outstanding controversies include access to Canada’s agriculture market, Australian concerns over American pharmaceutical patent rules, Peru’s rain forest management, Chinese components in Vietnamese textile exports and labor organizing rights in Vietnam and Mexico. The dispute over access to Canada’s protected dairy and poultry markets is so fierce that some participants say they believe Canada could drop out of the talks. . . .

United States officials feel confident enough a deal is at hand that they have scheduled a meeting among the chief negotiators at the Westin Maui Resort & Spa in Hawaii during the last four days in July and have notified Congress that they expect this to be the last one.

But on July 7th, the Canadian government restated its support for the TPP deal, with Finance Minister Joe Oliver saying increased trade and investment will benefit the economy.  Oliver further stated that Canada has “come a long way from the free trade bogeyman” era of the 1980s, when the North American Free Trade Agreement was negotiated.”  The TPP deal “will unlock the Pacific powerhouse” and create jobs in Canada.  Canada is under pressure to open up its dairy and poultry sectors, where production is controlled through quotas and imports are restricted with high tariffs. Dismantling that system, known as supply management, may become an election issue in rural districts for Conservatives in the hard fought fall election.

Oliver further stated, “Free trade is at the heart of the Canadian advantage. It is the heart of Canada’s future.  Canada must build on the free trade empire we have forged.”

But on July 13th the Huffington Post reported that US Congressmen and Senators are pressuring the Administration to push Canada out of the TPP if it does not agree to deregulate its dairy and poultry industries and open them up to import competition.  This point, however, is not new.  Several months ago while discussing the TPP negotiations with Congressional trade staff on Capitol Hill, they made the same point.  If Canada does not give in on dairy and poultry, they will be dropped from the negotiations.

To stay in the TPP, the Canadian government must agree to dismantle the supply management system that protects Canada’s dairy and poultry industry.  In addition to the US, Australia and probably New Zealand are pushing Canada to open up.  In the past the Canadian government has broken up supply management system for certain products, dismantling the Canadian Wheat Board in 2011.  But it is reluctant to do so with the dairy industry because of the upcoming Canadian elections.

In addition to dairy and poultry, lumber is also a target.  Another target should be the Canadian Provincial restrictions on wine imports.  British Columbia, for example, levies an 89% tariff, higher than China, on US wine imports.

But Canada’s National elections are also an issue.  They take place on October 19, 2015 so the present Canadian government may want to wait to make major concessions until after the National election in Canada.

Because of these problems, many Trade Commentators, including John Brinkley of Forbes, believe that TPP still have a long way to go.  As John Brinkley stated in his column on July 7th:

Negotiations over the TPP among and between the 12 parties to it are not as close to completion as Obama and U.S. Trade Representative Michael Froman would like you to believe. There are enough unresolved issues in the text to keep the negotiators at the table for a long time.

To be fair, the 11 other TPP parties know they need to finish it and get it to the U.S. Congress for a vote by the end of the year. If it drags into the 2016 election year, all bets are off. That fact, along with Congress having given Obama fast-track authority, may soften their negotiating positions on some issues.

For the full article, see http://www.forbes.com/sites/johnbrinkley/2015/07/07/tpp-still-has-a-long-way-to-go/.

TPP NEGOTIATIONS BECOME MORE TRANSPARENT

As promised on the House and Senate floors the passage of TPA has led to more transparency. On July 9, 2015, the United States Trade Representative’s office (“USTR”) announced that members of its various advisory committees, including labor unions, industry experts and environmental groups, can now see the negotiating text of the TPP.

USTR specifically stated:

This week, a diverse group of trade advisers — including labor unions, industry experts, environmental groups and public advocates — will begin viewing draft TPP negotiating text as part of the congressionally established trade advisory process.  These advisors will receive full and equal access to the draft negotiation text in an effort to ensure that they can adequately prepare congressionally mandated reports on TPP.

The Obama administration firmly believes that the input of a wide array of voices is integral to trade negotiations, which is why we have grown the size and membership of our trade advisory committees.

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

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, was sent to President Obama.  See House Debate on TPA at http://www.c-span.org/video/?326582-4/house-debate-trade-promotion-authority.  On June 24, 2015 the US Senate passed the Trade Promotion Authority (“TPA”) bill by a vote of 60 to 38 for President Obama’s signature.  See the Senate debates at http://www.c-span.org/video/?326681-5/senate-debate-trade-promotion-authority.  As the Senate and House leadership promised, both TPA and TAA were on President’s Obama’s desk at the same time.  To see President Obama sign the Trade Bills, watch CSPAN at http://www.c-span.org/video/?326821-2/president-obama-bill-signing-ceremony.

Now the heavy lift begins.  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 is 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 possibly into 2016, an election year.

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.

As Paul Ryan, Chairman of the House Ways and Means, stated on President Obama’s signature of TPA:

“With TPA in place, our attention shifts to the trade agreements currently being negotiated with our friends in the Asia-Pacific region and Europe. Just as TPA allows greater oversight of the process, it requires the administration to follow Congress’s priorities and achieve high-standard agreements. We have a great opportunity ahead of us, and Congress and the administration both must do their parts to seize it.”

Anyone who thinks TPP negotiations will be finished in a month is simply wishful thinking.  This will be a difficult set of negotiations.  As the Wall Street Journal stated on its June 25th 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 Democratic member of House Ways and Means, stated on June 25th on the House Floor, the battle now switches from TPA 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.  . . . 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.  . . .

As Republican Congressman Pete Sessions stated on June 25th on the House Floor, 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. . . . As soon as it’s signed by the President, he can go at it.  . . . 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 . . . 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 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 went to 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.

The funding for TAA for companies, however, remains very low.  As one TAAC director told me:

Due to the Appropriations error of funding the program at $12.5M, our TAAC will have a budget of less than $3,000.00 per company this next year.   Obviously, we can’t provide much serious technical assistance for $3,000 per company, and worse, it disrupts the momentum we’ve established for facilitating their recovery.   Worse yet, this happens at a time when we should be building the program in anticipation of TPP and TTIP!

 It’s frustrating to know that the TAA for Worker’s program net cost annually per individual worker is $53,802.00* – just think what we could do if we had that kind of budget annually for companies!

* A 2012 cost-benefit evaluation commissioned by the Department of Labor found a net cost to society of $53,802 for each person who enrolled in the program between November 2005 and October 2006.

At that rate, if the TAA for Firms program prevented just 300 workers per year from enrolling in TAA for Workers because we saved their jobs instead (what a concept!), we would have generated more than enough cost savings to fund the TAAF program’s national annual budget of $16M (300 workers x $53,802 = $16,140,600).   That’s an incredibly low bar to meet on a national basis – it’s one that each of the 11 regional TAAF Centers could meet quite easily, resulting in net cost savings of more than $175M!

 When you look at it from that perspective, it shows the kind of  “no brainer” decision it is to fund the TAA for Companies program.  It’s really hard to understand why we can’t gain some traction with that elementary logic.

SENATE PASSES TPA AND THE BILL GOES TO PRESIDENT OBAMA’S DESK FOR SIGNATURE—THE INS AND OUTS OF THE NEGOTIATIONS

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 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, which then went to the House for final passage on June 25th.

To recap, 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 over the weekend to come up with an alternative strategy and delink 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/.

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”) and essentially agreed to move forward with the stand alone House TPA Bill, which had passed on June 18th.  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.

All the Senators emphasized during the final TPA 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 has now gone to conference where representatives of the House of Representatives and Senate will reconcile differences between the House and Senate bills.

Before the TPA final vote on June 24th, Senate Majority leader Mitch McConnell stated:

Yesterday’s T.P.A. [procedural] vote [was a] 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. . . 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 final TPA 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 has gone 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.  . . .

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. . . .

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 the final TPA vote 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 final TPA 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.  . . .

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.

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. . . . 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.

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

In light of the Congressional votes for TPA, one hopes that the Congress is moving away from the protectionist brink, but with a 60-37 procedural vote in the Senate on June 23rd, 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 has passed, 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 1930s. 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.  It should be noted that the US antidumping and countervailing duty laws are in the Tariff Act of 1930 today.

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, and 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?.

WASHINGTON CONGRESSIONAL DELEGATION SPLITS ON TPA BILL

To see the powerful impact of Union and protectionist arguments on Congress, one need look no further than my state of Washington where the Washington Congressional delegation was split.  Although Senators Patty Murray and Maria Cantwell voted for TPA, along with Republicans in the House, the Washington State Democrats in the House were split.

Congressmen Rick Larson and Derek Kilmer along with Congresswoman Susan delBene voted in favor of TPA,  but Democratic Congressmen Adam Smith, Denny Heck and Jim McDermott wilted under substantial pressure from the Unions and voted against TPA.

In voting for TPA, in the attached statement, Larsen_ TPA Is Right For Pacific Northwest Economy _ Congressman Rick Larsen, Congressman Rick Larson sets forth his arguments in favor of TPA, stating in part:

I understand many people want the content of trade negotiations to be public. But opening up negotiations would give other countries a clear view of U.S. positions and lessen our ability to push for the best deal for our workers, environment and economy. I think the transparency provisions in the TPA bill will enable the public to have more and better information about the content of trade agreements. . . .

The North American Free Trade Agreement (NAFTA) is a 20-year-old agreement, and our country has learned a lot about trade agreements since then. The TPP negotiations are much stronger than NAFTA for several reasons. TPP includes strong requirements that other countries involved in the negotiations live up to high standards for workers, the environment and human rights. NAFTA did not. And TPP puts in place penalties, so if other countries involved in the agreement do not live up to these high standards, they will be sanctioned. NAFTA did not include sanctions for violating the terms of the agreement.

TPP is not yet finalized. I have been reviewing the sections on labor, the environment, and investor-state dispute settlement as negotiations have progressed, and I will continue to do so.

Another reason TPP is much stronger than NAFTA is that Congress is working to hold the President to higher standards for all trade agreements. The 2015 Trade Promotion Authority (TPA) bill that the House is set to vote on as soon as this week provides Congressional direction to the Administration for trade agreements the President is seeking to finalize. The 2015 TPA bill is much more stringent than its predecessor, which Congress passed in 2002. Let me explain why.

The 2015 TPA bill (which you can read here: http://1.usa.gov/1T1afiY) directs trading partners to adopt and maintain core international labor standards and multilateral environmental agreements, and calls for sanctions if they do not comply. The 2002 TPA law did not require compliance or provide enforcement tools with core international labor and environmental standards. The 2015 bill requires several levels of transparency for the public . . . The 2002 bill required no transparency. The 2015 bill makes clear that trade agreements cannot change U.S. law without Congressional approval. The 2002 law did not include this level of Congressional oversight.

In the attached letter, KILMER STATEMENT ON TPA, Congressman Derek Kilmer sets forth his arguments in favor of TPA, stating in part:

This is a particularly hot topic as the Administration continues negotiations of the Trans-Pacific Partnership, a 12-nation trade agreement that would involve 40% of the world’s economy.  Suffice it to say, it’s important that America gets this right.

Trade is an essential part of Washington state’s economy. Generally, our state does well when we’re able to sell our apples, our wood products, our airplanes, our software, and other products overseas. Exports from just Washington’s Sixth Congressional District, which I represent, totaled more than $2.2 billion in 2013, supporting more than 67,000 jobs.

With that in mind, I appreciate President Obama’s suggestion that trade agreements – if done right – could expand opportunities to export our goods to growing markets like those in Asia and benefit Washington state’s employers and workers.

In addition, it’s worth acknowledging that global trade is a reality. The United States makes up just 4% of the world population – so global trade is going to happen regardless of whether Congress passes trade legislation. In making his case to Congress, the President has asked a key question: do we want America to sit back as China negotiates trade agreements around the world and seeks to set the rules of trade (leading to a race to the bottom on worker standards, environmental standards, and consumer protections) or do we want the United States to be involved in setting the rules and establishing high standards?

It’s a reasonable concern.   Earlier this year, I spoke with a manufacturer in Tacoma whose company makes American products made by American workers. But when that company tries to sell goods to Asia, their products consistently face high tariffs. The owner explained to me that he’s been told numerous times that he could avoid tariffs if he would only move his jobs to China. If we can see more American products made by American workers have the opportunity to enter new markets without these barriers, it could lead to economic opportunities.

Trade agreements with adequate protections for American companies could help reduce those tariffs, and boost sales –enabling American companies like this to expand production or hire more workers. But only if they are done right.

With that in mind, I believe that we need better trade deals than the ones we’ve had in the past. I do not want –nor would I support – an agreement that I believe would lead to American jobs going overseas or that would put corporate profits above the rights of workers or the health of our environment.

It’s critically important that we have a trade policy that reflects our region’s priorities and values. Above all, it is important to me that any trade agreement that Congress considers must ensure that we are exporting our products – not exporting our jobs.

That also means that any trade agreement needs to meet high labor standards that must be enforced. . . .

Unlike NAFTA – which failed to include labor or environmental standards as a core, enforceable part of the agreement – future agreements must have high standards that must be enforced.

Sens. Orrin Hatch (Utah) and Ron Wyden (Ore.), along with Rep. Paul Ryan (Wis.) jointly introduced the Bipartisan Congressional Trade Priorities and Accountability Act of 2015. This legislation would establish congressional trade negotiating objectives and enhanced consultation requirements for trade negotiations as well as allow for trade deals to be submitted to Congress for an up-or-down vote should they meet the United States’ objectives and Congress be sufficiently consulted.

This bill represents a departure from so-called “fast track” laws of the past. For example, it includes greater transparency, accountability, and Congressional oversight.   …This bill also includes stronger labor and environmental standards and unlike previous so-called “fast track” legislation, this bill demands that before countries can expand their trading relationship with the U.S., they have to maintain a core set of international labor and environmental standards.  . . .

Finally, it also would make clear that trade agreements cannot by themselves change U.S. law. Under the U.S. Constitution, Congress has to have a say regarding how our nation’s laws are changed, and I think it’s important that any legislation related to trade agreements makes that very clear. . . .

With or without trade agreements, global competition is a reality in today’s economy. And when companies and workers need to adapt to a changing marketplace, we need to make sure that they can get the resources that they need to get back to work and keep our economy growing. That’s why I support strong Trade Adjustment Assistance. I’m also pushing for Congress to reauthorize the Export-Import Bank, which helps finance U.S. exports of manufactured goods and services and create jobs through direct loans, loan guarantees, working capital finance, and export credit insurance.

While I will continue to fight to improve the Hatch-Wyden TPA bill as it moves through Congress, I support these bills because I believe that, together, they have the potential to expand jobs and economic opportunities here in America while at the same time fostering the development of higher environmental, worker safety, and consumer protection standards abroad. . . .

In the attached statement, DelBene Statement on Trade Promotion Authority _ Congresswoman Suzan DelBene, Congresswoman Suzan DelBene states why she is voting for TPA:

The reason to pass Trade Promotion Authority is to require negotiators to develop the strongest and most progressive trade deal possible. This TPA bill is the best Congress has ever had in terms of setting high and enforceable environmental and labor standards, as well as bringing more transparency to trade negotiations.  This bipartisan bill directs the administration to meet nearly 150 congressionally mandated negotiating objectives, including standards on labor protections, the environment, human rights, congressional consultation and transparency.

I’ve talked to large and small businesses, I’ve talked to labor and I’ve talked to environmentalists. It’s my job to weigh the concerns and needs on all sides and then do what’s best for Washington’s First District, which is why I supported the TPA legislation. I didn’t come to the decision lightly – Washington is the most trade dependent state in the nation and 40 percent of our jobs depend on trade. However, I will not hesitate to vote against a trade deal if it fails to meet the needs of our region and the high standards described in this TPA.

In voting against TPA, in the attached statement, ADAM SMITH NO TPA, Congressman Adam Smith sets forth his arguments against TPA, stating in part:

“Trade Promotion Authority (TPA) and the Trans Pacific Partnership (TPP), as they are currently being discussed, do not do enough to protect workers and the environment at home and abroad “The biggest problem facing our economy is a vanishing middle class. Corporations are incentivized to value customers, shareholders, and executives over their workers resulting in less take home pay and benefits. This is evidenced by the bottom 90 percent of Americans owning just 23 percent of total U.S. wealth. TPA and TPP are far from the only or even largest contributors, but they provide the wrong incentives allowing corporations to grow and benefit from undervaluing workers both here and abroad. . . .

“I often hear an argument in support of TPA and TPP that if we don’t set the rules in Asia and the Pacific, China will do so. Although clearly better than China’s, our record is not stellar either. . . .

“Currency manipulation is another problem that remains unaddressed. . . .

“These concerns aside, I would be more inclined to support a trade deal if I believed that American and global corporate culture was committed to paying workers fairly and ensuring their safety in the workplace. However, skyrocketing executive pay and huge stock buybacks at the expense of worker compensation convince me that there is an insufficient commitment to preserving the middle class. . . .

“Trade agreements should create sound incentives and reinforce business cultures that value workers, as they have the ability to help spread these practices worldwide. We must do more to support the companies in the 9th District and around the country that are doing so already.

Unfortunately, Wall Street and trade deals too often reward these companies’ competitors that improve their bottom line by shortchanging their employees–many of whom are not being adequately compensated for their work.

In voting against TPA, it is my hope the Administration will take a step back and better engage on strengthening compliance with worker and environmental protections through trade agreements. . . .

In the attached statement, Congressman Denny Heck announces decision on trade promotion authority _ Con, Congressman Denny Heck sets forth his argument opposing TPA:

Trade is a vital part of Washington’s economy. There is no doubt about that. Trade does not, however, exist in a vacuum, and for any agreement to be successful, we need to think bigger picture. Investing in our infrastructure, implementing comprehensive immigration reform, and reauthorizing the Export-Import Bank are some of the priorities that are being ignored during this debate. If we want to build an economy ready to compete with the rest of the world, we need to broaden this trade effort to include a commitment to actions that will bolster our economy back home.

“Accordingly, and after a great amount of input from constituents in the 10th District, I will vote no on trade promotion authority, known as fast track. I am open to trade legislation that enhances our ability to better compete in a global economy, but this approach is piecemeal and does not do enough to advance the interests and potential of the hard-working Americans I represent. We can do better.

FORMER DEMOCRATIC CONGRESSMAN DON BONKER’S ARTICLE ON THE TRADE DEBACLE IN THE HOUSE

On June 16, 2015, former Democratic Congressman Don Bonker described the initial trade defeat for President Obama on the TPA Bill in the House of Representatives in the China Daily:

Trade deal defeat, a form of Protectionism

By Don Bonker (China Daily)Updated: 2015-06-16 05:20

The scene in Washington, DC this week was not unlike a House of Cards episode that typically portrays high drama, political mischief and irony, involving the White House and Capitol Hill. The issue, the Trans-Pacific Partnership (TPP), is key to President Obama’s Asia strategy to strengthen economic relations and provide a shield from China’s growing influence in the region.

But like the House of Cards series, it’s more about politics than the merits of the issue. Here we saw President Obama’s usual adversaries, Republican and business leaders rallying support for his trade deal while his own party and traditional allies were fiercely opposing it.

Signs of this were played out at the annual Congressional baseball game, when the President was greeted by Democrats, chanting “O-ba-ma!, O-ba-ma!” then unexpectedly Republicans responded with “TPA, TPA!” that flipped what was intended to demonstrate unity.

The following day, President Obama met with his chief ally in Congress, Minority Leader Nancy Pelosi, who hinted that she would support the measure only to march onto the House floor and declare that “I will be voting to slow down fast-track,” a fatal setback for the president.

Most TV narratives are complex and full of suspense. Vote on June 12 in the House of Representatives was not a simple up or down vote but a bundling of related issues called TAA, TPA and TPP. One was voted down, a second narrowly passed and no action on the third. The result was a stunning defeat for President Obama, yet House Speaker John Boehner allows it will be taken up again.

Despite all the political rhetoric about saving American jobs or Obama’s weak leadership, what it comes down to is old fashion protectionism.  Protectionism is an attempt to prevent foreign imports from threatening US jobs, often by increasing tariffs and limiting market access in a variety of ways, including anti-dumping and countervailing duties even if they aren’t warranted.

Today the battleground is the Trans-Pacific Partnership (TPP), a trade pact involving 12 countries that has been enduring negotiations for two years. Bilateral and multi-lateral trade pacts have always prompted strong opposition, especially from Democrats given their close ties to labor unions. It is a populist issue that resonates at the grassroot level, therefore a difficult vote for most Congressmen.

As former US Trade Representative, Robert Zoellick, who presided over five bilateral trade agreements, once noted, these “trade agreements are more about politics than economics”. While his successors may put in a star performance as Chief Negotiators, they can only initial the final document since the US Constitution makes clear that Congress “regulates interstate and foreign commerce” and has the final say.

What gets lost in the debate is the greater significance of the issue, which is America’s leadership in today’s global economy. The Obama Administration earlier portrayed the TPP as a geopolitical strategy that would give the US a stronger presence in Asia and provide a protective shield for Asian countries feeling threatened by China’s enormous growth and influence in the region. Now this initiative and America’s leadership in achieving these goals, plus the mutual benefits that come with trade deals, are at risk not because of China or the lack of effective negotiations but the political forces in play on Capitol Hill.

America is also being challenged by China in today’s global economy. If Congress disapproves either the fast-track legislation or TPP, guess who will step in and become the mighty economic power in Southeast Asia? Another sign of America’s declining influence as it becomes preoccupied with the escalating conflicts and chaos in the Middle East.

Protectionism has consequences. In the 1928 presidential election, Herbert Hoover campaigned on advocating higher tariffs that set the stage for an eager Republican Congress to indulge as never before, triggering an unbridled frenzy of log-rolling — jockeying for maximum protection of commodity and industry producers leading to enactment of the Smoot-Hawley Tariff Act that hiked import fees up to 100 percent on over twenty thousand imported products.

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

Today the call for protectionism is not coming from the Chamber of Commerce and business advocates but the nation’s most powerful union leaders. The Democrats, abandoning their own president, are running for cover, fearful of losing support of union leaders who have made it clear that any Congressman who dares to vote for fast track (Trade Promotion Authority) legislation that “we will cut the spigot off on future donations to your campaign”.

As in any House of Cards program, the drama continues with no certainty about the outcome. Yet failure to approve the Trans-Pacific Partnerships puts in jeopardy the next trade agreement (Transatlantic Trade & Investment Partnership) and the upcoming US-China Bilateral Investment Treaty, as well as undermining America’s leadership internationally.

The author is former US congressman and chaired House Foreign Affairs Subcommittee on International Economy.

AUSTRALIA FTA WITH CHINA

On June 17, 2015, Australia and China signed a free trade agreement.  See https://www.austrade.gov.au/Export/Free-Trade-Agreements/chafta.  As Paul Ryan stated in the House, if the United States does not lead on trade, China will.

TRADE

SED TALKS

On June 23, 2015, the attached remarks, BIDEN REMARKS SED, were made by Vice President  Joe Biden and Vice Premier Liu Yandong in the U.S.-China Strategic & Economic Dialogue  in Washington DC.  

Vice President Joe Biden stated in part:

And there’s an urgent need to agree on a rule-based system for rapidly evolving areas ranging from cyber space to outer space – a new set of rules. Together, collaboratively, we have an obligation –China and the United States – to shape these rules. And let me be clear: The United States believes strongly that whenever possible, China needs to be at the table as these new rules are written.  Responsible competition, adhering to these common rules – both old and new – in my view will be the essential ingredient necessary to manage areas of disagreement, and to build the long-term sustainable U.S.-China relationship.

As President Xi has said, “There’s competition in cooperation.” Yet such competition is healthy, based on mutual learning and mutual reinforcement. It’s a fundamental sense. It is conducive to our common development.  . . .

Responsible competitors help to sustain the system where research and development are rewarded, where intellectual property is protected, and the rule of law is upheld, because nations that use cyber technology as an economic weapon or profits from the theft of intellectual property are sacrificing tomorrow’s gains for short-term gains today. They diminish the innovative drive and determination of their own people when they do not reward and protect intellectual property. . . .

And let me be crystal clear . . .: We do not fear China’s rise. We want to see China rise, to continue to rise in a responsible way that will benefit you most, China, because you have an important role to play. A rising China can be a significant asset for the region and the world, and selfishly, for the United States.

China, like all nations in Asia, benefits from stability and prosperity – a stability and prosperity that, quite frankly, has been maintained over – since the end of the World War II by the United States of America for 60 years. We’re going to continue to play a role for decades to come, but don’t misunderstand it: We are a Pacific nation. 7,632 miles of our shoreline breaks on the Pacific Ocean.

We are a Pacific nation. What happens anywhere in the Pacific affects the United States as much as – more than any other portion of the world. And now we are a Pacific power, and we’re going to continue to remain a Pacific power. To respond to the changing world, the Administration has set in motion an institutionalized rebalance policy of the Asian Pacific region, not to contain but to expand all of our opportunities.

We believe this is important because the Pacific and every nation along its shore from Chile to China will form the economic engine that drives the economies of the 21st century. That’s where the action will be. As part of that rebalanced strategy, we’ve strengthened and modernized our alliances and our partnerships throughout the region. As part of that strategy, we have deepened our support for important regional institutions like ASEAN, and we’re continuing to work on the Trans-Pacific Partnership, which I predict we will succeed in getting done – the most progressive trade agreement in American history, and history, period. It boosts economic growth at home and abroad.

And as part of that strategy, we’re working to build more constructive and productive ties with China. But we all know this relationship is complicated and consequential, to say the least. And we all know, like a good marriage, it requires an awful lot of hard, hard work, an awful lot of attention.  . . .

There will be intense competition. We will have intense disagreements. That’s the nature of international relations. But there are important issues where we don’t see eye to eye, but it doesn’t mean we should stop working hand in hand because we don’t see eye to eye.  . . . I believe that all politics, especially international politics, is personal. It’s all personal. And – because only by building a personal relationship – that’s the only vehicle by which you can build trust.

VICE PREMIER LIU: . . .

President Xi Jinping takes this S&ED and CPE very close to his heart . . . . He believes that the new model of major country relations featuring mutual benefits, win-win cooperation, non- confrontation is the priority of China’s foreign policy. Facing complicated and volatile international situation, China and the United States should work together. They can work together in a wide range of areas. The two sides should keep the bilateral ties on the right track. As long as our two countries adopt an overall perspective, respect and accommodate each other’s core interests and be committed to a constructive approach to reduce misunderstanding and miscalculations, we can manage our differences and maintain our common interests. . . .

VICE PREMIER WANG:

Today more than 10,000 Chinese and Americans travel across the Pacific every day, and the number keeps growing at a double-digit rate. Two-way trade has exceeded U.S. $550 billion, and China has become one of the fastest-growing export markets for the United States. U.S. exports to China have helped to create nearly 1 million jobs in the U.S. Accumulated mutual investment topped U.S. $120 billion. And Chinese businesses have so far made investment in 44 states of America, with total investment reaching U.S. $46 billion and creating 80,000 jobs for America, and the numbers are still growing. . . .

Some people believe that the Thucydides trap between major countries is insurmountable. Some even want China and the United States to confront each other. In any case, decision-makers of both countries must always remember that confrontation is a negative sum game in which both sides will pay heavy prices and the world will suffer too.

Talking to each other does not create win-win all the time, but both sides will lose in a case of confrontation. Our dialogue mechanism may not be perfect, but it is an indispensable platform for the two countries to increase mutual trust, deepen cooperation, and manage differences.

History teaches us that China and the United States must not follow the old path of confrontation and conflict between major countries. Building a new model of major country relations is an effort to explore a new path towards peaceful coexistence. This path may not be smooth and the journey could be bumpy, but as a great Chinese writer said: “Originally there is no path – but as people walk down the same track and again, a path appears.” I’m convinced that we are on the right track.

INTERNATIONAL MONETARY FUND (“IMF”)— THE CHINESE YUAN IS NOT UNDERVALUED

On May 26, 2015, in the attached report, IMF CHINA CURRENCY NOT UNDERVALUED, the International Monetary Fund (“IMF”) determined that China’s currency is no longer unvalued.  The IMF specifically stated:

“On the external side, China has made good progress in recent years in reducing the very large current account surplus and accumulation of foreign exchange reserves.

Nevertheless, staff projections for 2015 suggest that China’s external position is still moderately stronger than consistent with medium term fundamentals and desirable policies. There are several factors influencing a country’s external position, with the exchange rate being one of them. While undervaluation of the Renminbi was a major factor causing the large imbalances in the past, our assessment now is that the substantial real effective  appreciation over the past year has brought the exchange rate to a level that is no longer undervalued. However, the still too strong external position highlights the need for other policy reforms—which are indeed part of the authorities’ agenda—to reduce excess savings and achieve sustained external balance. This will also require that, going forward, the exchange rate adjusts with changes in fundamentals and, for example, appreciates in line with faster productivity growth in China (relative to its trading partners).

On the exchange rate system, we urge the authorities to make rapid progress toward greater exchange rate flexibility, a key requirement for a large economy like China’s that strives for market based pricing and is integrating rapidly in global financial markets.  Greater flexibility, with intervention limited to avoiding disorderly market conditions or excessive volatility, will also be key to prevent the exchange rate from moving away from equilibrium in the future. We believe that China should aim to achieve an effectively floating exchange rate within 2–3 years.

On June 10, 2015, Senators Charles Schumer (D-NY) and Lindsey Graham (R-SC) urged the IMF to not recognize the Chinese yuan as a global reserve currency.  They argued that the fact that Chinese hackers had gained access to the personal records of at least 4 million U.S. government workers, and months earlier that hackers in China had broken into the computer systems of two U.S. healthcare giants are:

just the latest in a litany of egregious actions, or inactions, that reflect the government’s lack of an ability to participate in an honest and transparent manner on the global stage. This behavior cannot be rewarded by the international community, but more importantly, the Chinese government cannot be trusted to uphold international market standards without demonstrated evidence of a commitment to reform.”

In addition to the cyber attacks, Schumer and Graham claim that Beijing continues to undervalue its currency and lacks the necessary regulatory protections that are necessary to:

ensure the security of global financial markets.  While we support China’s efforts to modernize its currency and agree that its efforts to be eligible for the SDR basket are in line with financial liberalization standards that prevent currency manipulation, we do not believe that China’s efforts have been substantial enough, nor do we believe that their commitment has been demonstrated in a way that can be counted on consistently, especially when market pressure for the yuan to be strengthened increases.

SOLAR CELLS—EC AGREEMENT GOES DOWN FOR THREE COMPANIES, COMMERCE ISSUED FINAL SOLAR CELLS AD AND CVD REVIEW DETERMINATIONS AND CANADA FINDS INJURY FROM DUMPED/SUBSIDIZED CHINESE SOLAR PANELS

EC ABROGATES AGREEMENT ON SOLAR CELLS FOR THREE CHINESE COMPANIES

On June 4, 2015, in the attached notice, EC WITHDRAWS UNDERTAKING GO TO DUTIES, the European Union (“EU”) announced that it was cancelling its agreement with China in the Solar Cells antidumping and countervailing duty case with regard to three Chinese exporting producers companies: Canadian Solar, ET Solar, and ReneSola.  In the notice, the EU stated:

COMMISSION IMPLEMENTING REGULATION (EU)  . . . of 4 June 2015 withdrawing the acceptance of the undertaking for three exporting producers under Implementing Decision . . . confirming the acceptance of an undertaking offered in connection with the anti-dumping and anti-subsidy proceedings concerning imports of crystalline silicon photovoltaic modules and key components (i.e. cells) originating in or consigned from  . . . China . .  . .

Following the notification of an amended version of the price undertaking by a group of exporting producers (‘the exporting producers’) together with the CCCME, the Commission confirmed . . . (1) the acceptance of the price undertaking as amended (‘the undertaking’) for the period of application of definitive measures. The Annex to this Decision lists the exporting producers for whom the undertaking was accepted, including: (a) CSI Solar Power (China) Inc., Canadian Solar Manufacturing (Changshu) Inc., Canadian Solar Manufacturing (Luoyang) Inc., and CSI Cells Co. Ltd together with their related company in the European Union  . . .(‘Canadian Solar’); (b) ET Solar Industry Limited and ET Energy Co. Ltd together with their related companies in the European Union . . . (‘ET Solar’); and (c) Renesola Zhejiang Ltd and Renesola Jiangsu Ltd  . . .(‘ReneSola’). ….

The findings of breaches of the undertaking and its impracticability established for Canadian Solar, ET Solar, and ReneSola require the withdrawal of the acceptances of the undertaking for those three exporting producers  . . . In addition, the Commission analyzed the implications of actions by Canadian Solar, ET Solar, and ReneSola listed  . . . above on their relationships of trust established with the Commission at the acceptance of the undertaking. The Commission concluded that the combination of these actions harmed the relationship of trust with these three exporting producers. Therefore, this accumulation of breaches also justifies the withdrawal of acceptances of the undertaking for those three exporting producers . . . .

The undertaking stipulates that any breach by an individual exporting producer does not automatically lead to the withdrawal of the acceptance of the undertaking for all exporting producers.  In such a case, the Commission shall assess the impact of that particular breach on the practicability of the undertaking with the effect for all exporting producers and the CCCME.  . . . The Commission has accordingly assessed the impact of the breaches by Canadian Solar, ET Solar, and ReneSola on the practicability of the undertaking with the effect for all exporting producers and the CCCME.  . . . The responsibility for those breaches lies alone with the three exporting producers in question; the monitoring and the verifications have not revealed any systematic breaches by a major number of exporting producers or the CCCME.  . . . The Commission therefore concludes that the overall functioning of the undertaking is not affected and that there are no grounds for withdrawal of the acceptance of the undertaking for all exporting producers and the CCCME.

FINAL SOLAR CELLS REVIEW DETERMINATION BY COMMERCE

On July 7, 2015, in the attached Federal Register notices and decision memos, SOLAR CELLS FINAL DECISION MEMO SOLAR CELLS AD FINAL FED FINAL CVD FED REG SOLAR CELLS C-570-980 Final Results Notice 7-8-15 (3) Final CVD Decision Memo SOLAR CELLS 7-8-15, the Commerce Department issued final Solar Cells AD and CVD Review determinations in the May 25, 2012 to Nov 30, 2013 AD review period and the 2012 CVD Review period.  In the AD review determination, the AD rates ranged from 0.79% to 33.08% with the average separate rate being 9.67% and in the CVD review determination the CVD rates ranging from 15.43 to 23.28% and the non-reviewed companies receiving 20.94%.

CANADA FINDS INJURY IN ITS SOLAR CELLS CASE

ON July 7, 2014, in the attached statement, SOLAR CELLS CANADA, the Canadian International Trade Tribunal announced its final determination that imports of dumped and subsidized Chinese solar energy equipment exports are a threat of injury to Canadian producers.  AD and CVD orders will now be issued in Canada with AD rates ranging from 9.14 percent to 202.5 percent for the nine exporters who responded to its questionnaire and at 286.1 percent for all other Chinese exporters and an estimated subsidy amount of 84.1 percent.

TIRES FINAL DETERMINATION

COMMERCE DEPARTMENT FINAL DETERMINATION AND ITC FINAL THREAT OF MATERIAL INJURY DETERMINATION

On June 12, 2015, in the attached fact sheet, ITA FINAL FACT TIRES, and Federal Register notices, FINAL DOC FED REG CVD TIRES FINAL DOC FED REG AD TIRES, Commerce announced its affirmative final antidumping (AD) and countervailing duty (CVD) determinations regarding imports of certain passenger vehicle and light truck tires from the China.  The AD rates ranged from 14.35 to 87.99% and the CVD rates from 20.73% to 100.77%.

In response to the Commerce Department final determination, on June 17, 2015 in the attached statement, MOFCOM TIRES, the Chinese Ministry of Commerce (“MOFCOM”) stated:

The Head of the Trade Remedy and Investigation Bureau of the Ministry of Commerce said that the Department of Commerce of the United States launched the antidumping and anti-subsidy investigation against Chinese tire products,  adopted a lot of unfair and discriminatory practice during the investigation, especially refused to give Chinese state owned enterprises the separate rates, and deliberately raised the dumping and subsidy tax rates of Chinese products. Chinese government is paying close attention to it.

On July 14, 2015, in the attached announcement, Certain Passenger Vehicle and Light Truck Tires from China Injure U.S. Indus, the US International Trade Commission (“ITC”) reached an affirmative injury determination in a 3-3 tie vote in the Tires case.  The ITC reached a negative critical circumstances decision.  As a result of the ITC decision, antidumping and countervailing duty orders will be issued.

CAFC DISMISSES AN ACTIVATED CARBON APPEAL BECAUSE IMPORTER DID NOT PROTEST IN TIME

On June 26, 2015, in the attached Carbon Activated Carbon v. United States, CAFC ACTIVATED CARBON, the Court of Appeals for the Federal Circuit (“CAFC”) dismissed an antidumping appeal by importer because of failure to file protest in time.

CAFC AFFIRMS ITC INJURY DETERMINATION IN WOODFLOORING CASE

On July 15, 2015, in Swiff-Train Co. v. United States, in the attached decision, the CAFC affirmed the US International Trade Commission’s injury decision in the Wood Flooring from China antidumping and countervailing duty case.

COMMERCE DEPARTMENT FINAL CVD AND AD REVIEW DETERMINATION IN WOOD FLOORING CASE

On July 6, 2015, in the attached final determination, CVD FINAL WOODFLOORING, Commerce announced a CVD rate of only 0.99% in the 2012 Countervailing Duty review investigation on Multilayered Wood Flooring From China.

On July 8, 2015, in the attached final determination, WOODFLOORING AD FED REG, Commerce  announced its final AD rate of 0 to 58.84, with the separate rate companies receiving 13.74% for the administrative review period December 1, 2012 to November 30, 2013.

FIRST STEEL TRADE CASE FILED

As mentioned in prior newsletters, Steel Trade cases are coming, and on June 3, 2015 the first Steel Antidumping and Countervailing Duty case was filed against Corrosion-Resistant (Galvanized) Steel Products from China, India, Italy, Korea and Taiwan.  The details of the filing are set forth below in the ITC Filing notice:

Docket Number DN 3069

Received: Wednesday, June 3, 2015

Commodity: Certain Corrosion-Resistant Steel Products from China, India, Italy, Korea and Taiwan

Investigation Number: 701-TA-534-538 and 731-TA-1274-1278

Filed By: Alan H. Price, Jeffrey D. Gerrish, Robert B. Schagrin, Paul C. Rosenthal and Joseph W. Dorn Firm/Organization: Wiley Rein LLP; Skadden, Arps, Slate, Meagher & Flom LLP; Schagrin Associates; Kelley Drye & Warren LLP and King & Spalding LLP

Behalf Of: United States Steel Corporation, Nucor Corporation, Steel Dynamics Inc., California Steel Industries, ArcelorMittal USA LLC and AK Steel Corporation

Country: China, Korea, India, Italy, and Taiwan

Description: Letter to Lisa R. Barton, Secretary, USITC; requesting the Commission to conduct an investigation under sections 701 and 731 of the Tariff Act of 1930 regarding the imposition of countervailing and anti-dumping duties on Certain Corrosion-Resistant Steel Products from China, India, Italy Korea and Taiwan.

NEW ANTIDUMPING CASE HYDROFLUROCARBONS FROM CHINA

On June 25th, a new antidumping petition was filed against hydrofluorocarbon blends from China.  The alleged antidumping rate is more than 200%.  See ITC Notice below:

Docket Number 3073

Received: Thursday, June 25, 2015

Commodity:  Hydrofluorocarbon Blends

Investigation Number: 731-TA-1279

Filed By: James R. Cannon, Jr.

Firm/Organization: Cassidy Levy Kent (USA) LLP

Behalf Of: The American HFC Coalition

Country: China

Description: Letter to Lisa R. Barton, Secretary, USITC; requesting the Commission to conduct an investigation under section 731 of the Tariff Act of 1930 regarding the Imposition of Antidumping Duties on Imports of Hydrofluorocarbon Blends and Components Thereof from the People’s Republic of China.

JULY ANTIDUMPING ADMINISTRATIVE REVIEWS

On July 1, 2015, Commerce published the attached Federal Register notice, REQUEST REVIEW JULY, regarding antidumping and countervailing duty cases for which reviews can be requested in the month of July. The specific antidumping cases against China are: Carbon Steel Butt-Weld Pipe Fittings, Certain Potassium Phosphate Salts, Certain Steel Grating, Circular Welded Carbon Quality Steel Pipe, Persulfates, and Xanthan Gum.  The specific countervailing duty cases are: Certain Potassium Phosphate Salts, Certain Steel Grating, Circular Welded Carbon Quality Steel Pipe, and Prestressed Concrete Steel Wire Strand.

For those US import companies that imported Carbon Steel Butt-Weld Pipe Fittings, Potassium Phosphate Salts, Steel Grating, Circular Welded Carbon Quality Steel Pipe, Persulfates, and Xanthan Gum and the other products listed above from China during the antidumping period July 1, 2014-June 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.

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

A major part of the battle for Trade Promotion Authority (“TPA”) and the Trans Pacific Partnership (TPP) was the merits of Trade Adjustment Assistance (“TAA”). 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 opposed TAA because they see TAA as an entitlement. But in 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).  In the Bill signed by the President into law  TAA for Companies is set at only $15 million.  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..

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.  In that video, the director of MATAAC directly asks whether US companies are ready to give up on international trade victimhood.

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.

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 newsletters and as Ronald Reagan predicted in the attached 1986 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.

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.

RUSSIA—US SANCTIONS AS A RESULT OF UKRAINE CRISIS

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

Commerce stated:

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

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

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

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

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

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

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

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

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

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

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

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

The facilitation of any such transactions.

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

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

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

CUSTOMS

CUSTOMS CRACKS DOWN ON CHINESE HONG KONG SMUGGLING RING

On July 7, 2015, US Customs and Border Protection announced that four persons have been indicted for criminal violations in smuggling thousands of counterfeit Sony Corp. and Apple Inc. products, including iPhones and iPads, into the U.S. from China.  U.S. Immigration and Customs Enforcement stated that Andreina Beccerra of Venezuela, Roberto Volpe of Italy, Jianhua Li of China and Rosario La Marca, also of Italy, stand accused of a nearly five-year conspiracy to smuggle more than 40,000 phony electronic gadgets past U.S. customs officials, with most of the devices marked with false Apple and Sony trademarks. Most of the counterfeit products were made by Hong Kong-based Dream Digitals Technology (HK) Co. Ltd., where Li served as a sales manager.

CUSTOMS AND TRADE ENFORCEMENT BILL

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 and the House and have now gone to Conference Committee to smooth out differences between the Senate and House bills.  Some of those provisions include tough enforcement provisions for evasion of US antidumping and countervailing duty laws.

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

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

“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”

PRESIDENT RONALD REAGAN, JUNE 28, 1986

US CHINA TRADE WAR NEWSLETTER—MARCH 7, 2014

Dear Friends,

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

TRADE

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

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

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

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

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

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

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

As the ITC stated in its atached preliminary staff report:

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

ITC PRELIMINARY OCTG MANY COUNTRIES Pub4422 OCTG pdf

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

 

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

As the Senators stated:

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

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

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

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

 

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

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

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

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

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

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

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

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

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

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

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

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

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

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

USTR ISSUES ANNUAL TRADE REPORT TO CONGRESS

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

Conclude the Ambitious Trans-Pacific Partnership Negotiations . . .

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

IMPORT ALLIANCE FOR AMERICA/IMPORTERS’ LOBBYING COALITION

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

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

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

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

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

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

CHINESE ANTIDUMPING CASE—DRY CLEANING CHEMICALS FROM THE US

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

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

CUSTOMS

EXECUTIVE ORDER TO STREAMLINE TRADE 

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

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

CUSTOMS FRAUD—LIABILITY OF INDIVIDUAL OWNERS AND EMPLOYEES

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

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

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

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

and

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

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

In its request for the rehearing, the Government stated:

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

FDA—FOOD PROBLEMS

WASHINGTON/PACIFIC COAST SHELLFISH BANNED FROM CHINA—NOW TRANSSHIPMENT

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

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

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

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

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

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

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

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

What goes around does indeed come around.

PATENT/IP AND 337 CASES

ITC IS MAKING IT MORE DIFFICULT FOR PATENT TROLLS

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

The Commission specifically stated in the order:

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

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

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

ITC REQUESTS EN BANC REHEARING AT CAFC OF SUPREMA DECISION

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

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

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

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

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

DUPONT TRADE SECRET CONVICTION

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

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

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

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

NEW 337 CASE AGAINST CHINESE COMPANIES FOR IMPORTS OF SULFENTRAZONE

Docket No: 3004

Document Type: 337 Complaint

Filed By: Lisa a. Chiarini

Firm/Org: Hughes, Hubbard, & Reed LLP

Behalf Of: FMC Corporation

Date Received: March 5, 2014

Commodity: Sulfentrazone from China

Description:  Letter to Lisa R. Barton, Acting Secretary, USITC; requesting that the Commission conduct an investigation under section 337 of the Tariff Act of 1930, as amended regarding Certain Sulfentrazone, Sylfentrazone Compositions, and Processes for Making Sulfentrazone. The proposed respondents are: Beijing Nutrichem Science and Technology Stock Co., Ltd., China; Summit Agro USA LLC, Cary, North Carolina; Summit Agro North America Holding Corporation, New York, New York; and Jiangxi Heyi Chemicals Co. Ltd., China.

NEW PATENT AND TRADEMARK CASES AGAINST CHINESE COMPANIES, INCLUDING HUAWEI

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

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

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

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

ANTITRUST

VITAMIN C CASE

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

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

CHINA ANTITRUST CASES

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

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

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

SECURITIES

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

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

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

 FCPA DIGEST

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

CHINA

Avon Products

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

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

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

 JPMorgan

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

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

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

 Former Minister of Public Security

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

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

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

COMPLAINTS

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

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

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

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

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

Best regards,

Bill Perry

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

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

“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”

PRESIDENT RONALD REAGAN, JUNE 28, 1986

US CHINA TRADE WAR NEWSLETTER

Dear Friends,

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

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

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

US LITIGATION AGAINST CHINESE COMPANIES—DANGERS OF DEFAULT

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

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

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

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

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

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

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

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

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

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

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

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

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

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

TRADE

TRADE NEGOTIATIONS—TPP AND BALI/DOHA ROUND

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

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

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

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

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

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

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

TRADE PROMOTION AUTHORITY (“TPA”)

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

 

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

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

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

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

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

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

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

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

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

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

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

 

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

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

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

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

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

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

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

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

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

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

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

JANUARY 28 — STATE OF THE UNION

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

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

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

JANUARY 29TH—THE DAY FREE TRADE MAY HAVE DIED

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

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

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

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

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

 

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

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

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

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

 

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

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

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

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

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

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

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

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

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

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

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

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

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

DOHA ROUND-BALI

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

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

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

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

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

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

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

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

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

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

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

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

SOLAR CELLS REVIEW INVESTIGATION

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

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

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

Solar Trade problems with China are getting complicated.

SOLAR PRODUCTS INITIAL INVESTIGATION

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

 

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

 

See attached statement MOFCOM STATEMENT

CURTAIN WALL UNITS ARE COVERED BY THE ALUMINUM EXTRUSIONS CASE

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

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

See the attached decision.  SHENYANG YUANDA

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

NEW ANTIDUMPING AND COUNTERVAILING DUTY CASES AGAINST CHINA

WIRE ROD

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

Docket No: 3000

Document Type: 701 & 731 Petition

Filed By: Kathleen Cannon

Firm/Org: Kelley Drye & Warren LLP

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

Date Received: January 31, 2014

Confidential: Yes

Commodity: Carbon and Certain Alloy Steel Wire Rod

Country: People’s Republic of China

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

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

ANTIDUMPING AND COUNTERVAILING DUTY REVIEW INVESTIGATIONS

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

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

The People’s Republic of China:

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

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

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

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

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

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

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

Countervailing Duty Proceedings

The People’s Republic of China:

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

IMPORT ALLIANCE FOR AMERICA/IMPORTERS’ LOBBYING COALITION

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

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

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

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

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

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

CHINESE ANTIDUMPING CASE

POLYSILICON

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

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

FDA—FOOD PROBLEMS

CHINESE CHICKEN

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

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

CHINA CHICKEN PROBLEM CONG LETTER

WASHINGTON/PACIFIC COAST SHELLFISH BANNED FROM CHINA

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

PATENT/IP AND 337 CASES

INTERDIGITAL SETTLES 337 PATENT CASE WITH HUAWEI

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

CHINESE COMPANY LOOSES 337 RESINS TRADE SECRET CASE

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

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

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

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

DUPONT TRADE SECRETS CASE — TITANIUM DIOXIDE

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Complaints are posted above.

ANTITRUST

VITAMIN C CASE

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

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

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

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

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

 

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

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

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

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

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

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

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

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

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

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

 

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

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

 

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

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

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

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

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

BAER STATEMENTS TO CONGRESS

CHINA ANTITRUST CASES

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

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

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

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

SECURITIES

SEC DROPS CHINESE AUDIT CASE AGAINST DELOITTE

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

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

JURY CLEARS CHINESE INVESTMENT ADVISOR SIMING YANG

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

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

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

HINZE ARTICLE FCPA

COMPLAINTS

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

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

Best regards,

Bill Perry

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