US CHINA TRADE WAR–TRUMP AND TRADE, TRADE DROP, TAA FOR COMPANIES THE ANSWER, EC NME PROBLEM, UNIVERSAL TRADE WAR, CUSTOMS AND 337

White House Fountain Snow Pennsylvania Ave Washington DCTRADE IS A TWO WAY STREET

“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”

PRESIDENT RONALD REAGAN, JUNE 28, 1986

US CHINA TRADE WAR NOVEMBER 14, 2016

Dear Friends,

This blog post contains several articles about trade and Trump after his victory on November 8th.  The Trump victory will have a significant impact on trade policy.  As stated below, the TPP is dead.  The Republican Congress will not oppose Trump and bring the TPP to the Congressional floor in the Lame Duck.  The TPP may only come back when and if the trade safety net, including Trade Adjustment Assistance for Firms/Companies, is fixed.

The trade impact on the Rust Belt states, Wisconsin, Michigan, Pennsylvania and Ohio, is a major reason for the Trump victory.  Trump’s victory means that trade wars may escalate.  But with the increase in trade wars, global trade has already started falling and that means a 2015 drop of $200 billion in US exports.  Exports create US jobs too and when exports fall US jobs fall.

As Congressman Don Bonker states, trade conflicts with China and other countries will increase both from the US and the Chinese side. Trump may well self-initiate trade cases against China and China will bring cases against the US.  But Congressional Republicans will try to limit Trump’s protectionist nature.

Xi Jinping of China has already stated that the Chinese government wants to work with President Trump because of the importance of the US China economic relationship.

Complicating the situation is that last week the EC has proposed a change to its antidumping and countervailing to allow it to continue to treat China as a nonmarket economy country or as a country which distorts its market by government practices.

On the other hand, we can expect Congress to work very close with President Trump on different policy initiatives to make the United States a much more fertile ground for US manufacturing.  This will mean cuts in Corporate tax rates and the reduction in production curtailing regulations.  Trump will try and do everything possible to increase jobs in the United States.  Hopefully, that will mean more support to Trade Adjustment Assistance for Companies, which is the only effective US trade remedy that saves companies and the jobs that go with them.

Under the Universal Trade War theme, there are articles by Chinese lawyers on Chinese antidumping law, along with newsletter from an Indian lawyer about Indian trade law.  Many of these cases in other countries target the United States.

In addition, there is an article about Customs Evasion in the Aluminum Extrusions antidumping case and several recent 337 intellectual property cases against China.

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

Best regards,

Bill Perry

TRADE AND TRADE POLICY

TRUMP VICTORY AND WHAT IT MEANS FOR TRADE

Donald Trump won the Presidency on November 8th, and on January 20, 2017 Trump will become the 45th President of the United States.  What does this mean for trade?

TPP IS DEAD

With the Trump victory, Republicans in the House and the Senate will not fight Trump and will not bring the Trans Pacific Partnership (“TPP”) to the floor during the Lame Duck session. According to recent press reports, Trump might try and renegotiate TPP, but as written, TPP  is dead.

Several weeks ago during the heat of the campaign, Paul Ryan, Speaker of the House of Representatives, stated that he could no longer campaign with Donald Trump.  ln a speech on November 9th, the day after the Trump victory, House Speaker Paul Ryan ate humble pie.

In his speech, Ryan made it very clear that Trump’s victory was the most “incredible political feat” of his lifetime.  For a video of Paul Ryan’s speech, see https://www.bing.com/videos/search?q=paul+ryan+speech+video+after+trump+victory&view=detail&mid=556B672FB48D720BC373556B672FB48D720BC373&FORM=VIRE

Ryan also made it clear that he was extremely grateful because Trump was the first time Republican Presidential candidate to win Wisconsin’s electoral votes, his home state, since 1984.  Ryan also stated that Trump had coat tails.  Trump’s victory allowed down ballet Republicans to win.  The most important example of that was Wisconsin Republican Senator Ron Johnson, who was in a very tough reelection campaign.  Trump’s victory helped Ron Jonson win and allowed the Republicans to hold on to the Senate by a 51 to 49 plurality.

The simple political reality is that Trump’s victory allowed the Republicans to hold a majority in the Senate and the House.

As Paul Ryan stated,

“Donald Trump heard a voice in this country that no one else heard.  He connected in ways with people that no one else did.  He turned politics on its head.  And now Donald Trump will lead a unified Republican government.”

There is no way that Paul Ryan is going to oppose Trump and bring the TPP to the floor of Congress in the face of that political feat.  Let the next Administration deal with this issue.  As explained below, the TPP will probably stay dead until Congress and the Administration fix the Trade Adjustment Assistance for Firms/Companies program and make many US companies competitive again so they can withstand competition from imports.

It should be noted that those Republicans that distanced themselves from Trump, such as Republican Senator Kelly Ayotte of New Hampshire, lost their races.  In light of the Trump victory and his opposition to Trump, Governor John Kasich will have little weight when he argues for the TPP.

TRUMP’S PROTECTIONIST ARGUMENT TO THE RUST BELT STATES DROVE HIS VICTORY

The big surprise in the Trump victory was that traditionally Democratic states, the Rust Belt, of Wisconsin, Michigan and Pennsylvania and Ohio all went for Trump.  To illustrate the shock to the Democratic party, Hilary Clinton did not even campaign in the State of Wisconsin because the Democrats assumed they had Wisconsin in the bag.  Why did these Rust Belt states go for Trump?  Trade.

The person who forecast this victory was Michael Moore, the very famous Democratic gadfly and movie producer.  In a true statement against interest, last summer Michael Moore explained why he, the Good Democrat, believed that Trump would win the election—the Rust Belt and Trade.  http://michaelmoore.com/trumpwillwin/.  Donald Trump spoke out against the US automobile companies moving their manufacturing to Mexico.  Trump threatened that if they did, a President Trump would impose a 35% tariff on all these cars coming back to the United States.  The Auto executives were stunned, but the Working Class in Michigan stood up and cheered.  See Moore’s powerful video predicting the Trump victory https://www.youtube.com/watch?v=YKeYbEOSqYc.  As Moore stated, Donald Trump is the “human Molotov cocktail” that these working people want to throw through the establishment window.

After the election, Moore also made it clear that it was not racism that allowed Trump to win.  As Moore stated, millions of Americans, who voted for Barak Hussein Obama for two terms, voted for Donald Trump.  See Moore’s video at http://dailycaller.com/2016/11/11/michael-moore-millions-of-trump-voters-elected-obama-twice-theyre-not-racist-video/.  To paraphrase Bill Clinton, the reason Trump won was “the economy stupid” and one of the major economic issues was trade.

Ohio’s Cuyahoga County Republican Party Chairman Robert S. Frost stated that he believes that Trump’s trade message had a deep and profound effect on the regional electorate in Ohio:

“The economy has been going gangbusters, the U.S. has been expanding its trade relationships … but there are people here who [were] working, at many times, very skilled jobs that they took a great deal of pride in. They felt like they were left behind in this economy, and Donald Trump spoke right to that in places like Youngstown to Detroit to Milwaukee.”

Exit polls showed that half of Michigan’s voters are of the opinion that free trade takes away jobs, and those trade skeptics broke for Trump by a 57 to 36 percent margin over Democratic nominee Hillary Clinton.  There are similar stories to be found in Ohio and Pennsylvania, where 47 percent and 53 percent of voters respectively felt that free trade hurts workers and jobs.

Trump’s arguments are the same protectionist arguments that Rust Belt Democrats have used to be elected for decades, but the Workers had seen no change.  By upending conventional Republican wisdom on trade, Trump opened the door to a whole new group of voters.  These workers in the Rust Belt are Nixon’s Silent Majority, the Reagan Democrats, that went for Trump.

As Frost further stated:

“Organized labor had thought that the Democrats had had their backs for the last 25 years, but they look around and see where they are, and they wonder why they had placed their faith there. Donald Trump went against what had been Republican orthodoxy on trade. Part of how we got there is that Hillary Clinton … began taking an internationalist position of trade for trade’s sake, as opposed to representing an American position on trade.”

Trump appealed to the emotions of workers who felt wronged by a steady pattern of trade liberalization that is, in their minds, was about to get much worse if the U.S. Congress had been able to ratify the Trans-Pacific Partnership accord,

On October 18, 2016 in an article in Real Clear Politics entitled “The Trump Trade Doctrine: A Path to Growth & Budget Balance”. Wilbur Ross & Peter Navarro explained why they believed the Trump Trade Policy would work:

Budget-deficit hawks often insist that the only way to balance the Federal budget is to raise taxes or cut spending. The far smarter path to balance the budget is simply to grow our economy faster.

From 1947 to 2001, the U.S. real gross domestic product grew at an annual rate of 3.5 percent. Since 2002, that rate has fallen to 1.9 percent — at the cost of millions of jobs and trillions of dollars of additional income and tax revenues.

Donald Trump’s economic plan will restore America’s real GDP growth rate to its historic norm.  It proposes tax cuts, reduced regulation, lower energy costs, and eliminating America’s chronic trade deficit. . . .

This new normal argument — it should more appropriately be called the “new dismal” — also ignores the self-inflicted negative impacts from poorly negotiated trade deals and the failure to enforce them. These bad deals include, most notably, NAFTA, China’s entry into the World Trade Organization in 2001, and, most recently, Hillary Clinton’s debilitating 2012 U.S.-Korea Free Trade Agreement.

In 2012, then Secretary of State Hillary Clinton promised that the “cutting edge” South Korean deal would create 70,000 new jobs. Instead, the US has lost 95,000 jobs and America’s trade deficit with South Korea has roughly doubled. Moreover, workers in the U.S. auto industry, particularly in states such as Michigan, Ohio, and Indiana, have been hard hit. . . .

Donald Trump has pledged to renegotiate every one of America’s bad trade deals according to the principles of the Trump Trade Doctrine. The Trump Trade Doctrine states that any new or renegotiated deal must increase the GDP growth rate, decrease the trade deficit, and strengthen the U.S. manufacturing base. . . .

Some critics will argue that reducing the flow of cheap imports from locales such as China, Mexico, and Vietnam will be inflationary and act as a regressive tax by denying lower-income households cheap imports. In reality, four decades of one-sided globalization and chronic trade deficits have shifted wealth and capital from workers to the mobile owners of capital and reduced the purchasing power of Americans.

A visit to cities like Johnstown, Pennsylvania, and Flint, Michigan, reveals quickly the falsehoods and broken promises of those who preach the gains from trade deficits — which are often financed by those who turn a profit from offshoring production. Trump’s proposals will reverse these trends, concentrate more wealth and purchasing power in the hands of domestic workers and result in substantially higher employment. This will more than offset any price increases. Moreover, as products develop a competitive advantage in America and increase their production and margins, prices per unit will go down.

To those alarmists who insist Trump’s trade policies will ignite a trade war, we say we are already engaged in a trade war — a war in which the American government has surrendered in before even engaging. Unfair trade practices and policies of our competitors are simply overlooked or ignored. As a well-documented result, America has already lost tens of thousands of factories, millions of jobs, and trillions in wages and tax revenues.

Donald Trump will simply put our government on the field in defense of American interests. As Trump pursues a policy of more balanced trade, our major trading partners are far more likely to cooperate with an America resolute about balancing its trade than they are likely to provoke a trade war.

This is true for one very simple reason: Our major trading partners and deficit counterparties are far more dependent on our markets — the largest in the world — than we are on their markets.

Consider that in 2015, we ran a trade deficit in goods of $746 billion. 76 percent of that trade deficit in goods concerned just four countries: China ($367 billion); Germany ($75 billion); Japan ($69 billion); and Mexico ($61 billion).

If we look at the bilateral relationships of America with each of these countries, improvement in our trade balance is clearly achievable through some combination of increased exports and reduced imports, albeit after some tough, smart negotiations — an obvious Trump strength.   The same possibilities exist with countries where we are running smaller, but nonetheless significant, deficits, such as Vietnam ($31 billion), South Korea ($28 billion), Italy ($28 billion), and India ($23 billion).

Such deficit reduction negotiations will not be wild-eyed, hip-shooting exercises. A key part of the Trump strategy will be to divert some of the products our deficit counterparties import to U.S. suppliers.

For example, many of our trading partners with which we run large trade deficits import substantial hydrocarbons from elsewhere. It would not be difficult for, say, China, Japan, Germany, and South Korea to buy more U.S. hydrocarbons. Trump intends to end the regulatory constraints on hydrocarbon production and hydrocarbon exports, resulting in as much as $95 billion gains for the U.S.

Our deficit counterparties also import lots of industrial equipment and supplies of plastics and other materials, some from the U.S. already. There is ample room here for them — along with countries like India, Mexico, and Vietnam — to switch vendors.

Trump’s strategic approach to trade negotiations would begin with product-by-product and country-by-country analyses. Our negotiators would set goals that are achievable and pursue them fiercely. No prior administration has ever approached trade as surgically as a Trump Administration would.

As a business person, rather than a politician, Trump understands this: There is no more reason to let our major trading partners take advantage of us than there is for a large private company to permit its vendors to do so.

You will notice we have not mentioned tariffs. They will be used if necessary against mercantilist cheating, but only in a very precise and defensive way.

Ultimately, our view is that doing nothing about unfair trade practices is the most hazardous course of action — and the results of this hazard are lived out every day by millions of displaced American workers and deteriorating communities. We simply cannot trade on their one-sided terms; they are just too destructive to the U.S. growth process.

At the end of the day — and on November 8th — voters have a very clear choice between Trump’s smart path to rapid growth and budget balance and Hillary Clinton’s new dismal world of economic stagnation. At least on the economy, this choice is clear.

Emphasis added.

The problem with the argument, however, is that it is based on the economic situation decades ago when the US was the largest market in the World.  That is no longer true.  China with its 1.2 billion population has a larger market than the US.  House Speaker Paul Ryan has cited many times that 75% of the World’s consumers are outside the United States.

The real problem with Trump’s trade policy is uncertainty.  No one knows how aggressive Trump will be in a new Administration.  Through the Commerce Department self-initiating antidumping and countervailing duty cases and bringing Section 201 Escape Clause cases against the World, a President Trump can certainly increase protectionist barriers in the US.

A President Trump can unravel NAFTA and dump the TPP, but if the US erects substantial barriers to US imports, countries around the World will respond by increasing barriers to US exports.

NOT RETALIATION RECIPROCITY

The problem with protectionism is that trade is a two-way street and what the US can do to countries, they can do back.  In my last blog post, I stated that although many US politicians, including Donald Trump, want to adopt a mercantilist trade policy which favors pushing exports and protecting US industries from imports, the US politicians simply do not understand retaliation.  In this blog post, I want to restate this because the issue is not retaliation.  It is reciprocity.

Retaliation implies a tit for tat response.  You attack us.  We attack you.  The United States files an antidumping case targeting $4 billion in imports of Solar Cells from China, and China responds with a meritless Chinese antidumping case targeting $2 billion in imports of Polysilicon from the United States.  But that is not what truly happened.  In the Chinese polysilicon case, for example, the Chinese polysilicon industry was truly being hurt by US imports.

The real issue is reciprocity.  If the US can use its antidumping and countervailing duty laws to find dumping and subsidization in more than 90% of the cases, the Chinese governments and governments around the World can make the same finding with regards to imports from the United States.  What goes around comes around.

Free trade agreements, such as the TPP and the TTIP, which would break this cycle are now dead as the US and each country wants to put its industries first and make their country and industries great again.  The rise in economic nationalism results in trade wars in which country after country will fire trade guns against each other.

The argument that trade wars are already going on is true, but what the pundits do not realize is that under Trump the trade wars will get bigger.  The US has antidumping and countervailing duty orders covering $30 billion in imports from China.  The Chinese government has orders blocking about $10 billion in imports from the US, including polysilicon, chicken, numerous chemical products, and steel products.  Just recently, the Chinese government has issued an antidumping order blocking over $1 billion in Chinese imports from the United States of distiller grains, and now there is talk about a case targeting $15 billion of imports of US soybeans.  What goes around comes around.

In a November 11th editorial, entitled “The Message Of Donald Trump’s Stunning Victory” the International Business Daily stated that the one policy which has to be reined in by Republicans in Congress is trade:

“Republicans will also have to work hard to temper Trump’s anti-free-trade instincts.  A trade war is the one big risk Trump’s presidency represents for the economy.  Trump has repeatedly the he is all in favor of free trade, and the GOP needs to hold him to those words.”

TRADE IS FALLING AROUND THE WORLD

Moreover, on October 30, 2016, Binyamin Applebaum in an article entitledA Little-Noticed Fact About Trade: It’s No Longer Rising” found that trade around the world is dropping, including a drop of $200 billion in US exports:

“The growth of trade among nations is among the most consequential and controversial economic developments of recent decades. Yet despite the noisy debates, which have reached new heights during this Presidential campaign, it is a little-noticed fact that trade is no longer rising. The volume of global trade was flat in the first quarter of 2016, then fell by 0.8 percent in the second quarter, according to statisticians in the Netherlands, which happens to keep the best data.

The United States is no exception to the broader trend. The total value of American imports and exports fell by more than $200 billion last year. Through the first nine months of 2016, trade fell by an additional $470 billion It is the first time since World War II that trade with other nations has declined during a period of economic growth. . ..

But there are also signs that the slowdown is becoming structural.  Developed nations appear to be backing away from globalization.

The World Trade Organization’s most recent round of global trade talks ended in failure last year. The Trans-Pacific Partnership, an attempt to forge a regional agreement among Pacific Rim nations, also is foundering. It is opposed by both major-party American presidential candidates. Meanwhile, new barriers are rising. Britain is leaving the European Union. The World Trade Organization said in July that its members had put in place more than 2,100 new restrictions on trade since 2008.

“Curbing free trade would be stalling an engine that has brought unprecedented welfare gains around the world over many decades,” Christine Lagarde, managing director of the International Monetary Fund, wrote in a recent call for nations to renew their commitment to trade. . . .

But even if growth rebounds, automation reduces the incentives to invest in the low- labor-cost developing world, and it reduces the benefits of such investments for the residents of developing countries.”

UNFAIR TRADE CASES DO NOT WORK; THEY DO NOT SAVE THE US COMPANIES

The problem with the potential Trump policy of bringing more unfair trade cases to solve the trade problem is that trade cases do not work.  They do not save the companies and the jobs that go with them.

Bethlehem Steel, a history that I am personally aware of, had 40 years of protection from steel imports through various antidumping and countervailing duty cases and orders.  Where is Bethlehem Steel today? Green fields.

Trying to stop a wave of low priced imports by filing an unfair trade cases is like putting finger in a dike when faced with a tidal wave engulfing the entire company and industry.

When an industry and company is faced with competition from imports it is so easy to engage in globalization/international trade victimhood.  We poor US companies cannot compete because all imports are dumped and subsidized.

For countries and companies faced with import competition, the easy solution is blame the foreigner.  The only way for a company to truly survive, however, is give up the globalization victimhood mindset and do what is necessary to make the company competitive again.

EXISTING PROGRAMS TO MAKE US MANUFACTURING COMPANIES MORE COMPETITIVE IS THE ANSWER TO THE TRADE PROBLEM — TAA FOR FIRMS/COMPANIES AND THE MEP MANUFACTURING PROGRAM– BUT THEY HAVE BEEN CUT TO THE BONE

As described in my September newsletter and uschinatradewar.com blog post, which can be found at http://uschinatradewar.com/us-china-trade-war-tpp-politics-taaf-the-answer-2-billion-missing-dumping-duties-as-cases-rise-customs-law-changes-solar-cells-337-customs-stop-infringing-imports/, free trade requires competitive US companies and industries.  For the US government to go forward with a free trade agenda and the passage of free trade agreements, it must restore the trade safety net.

The US Government already has successful programs to make US companies injured by imports competitive again, but they have been cut to the bone. Companies and Unions that want to take advantage of these programs and survive must first change their mindset and reject the defeatism of international trade/globalization victimhood.

Those programs are:

  • Trade Adjustment Assistance for Firms (Commerce)
  • The Hollings Manufacturing Extension Partnership (Commerce)

Economists and policy makers of all persuasions are now beginning to recognize the requirement for a robust response by this nation to foreign imports – irrespective of party affiliation or the particular free trade agreement under consideration at any given moment.  Companies, workers and Government officials need to stop blaming the foreigner and figure out what they can do to compete with the foreign imports. These two programs make US companies injured by imports competitive again.

Free trade does not have to be abandoned resulting in a lose lose situation for all countries.  When the US Government enters into Trade Agreements, such as NAFTA, the TPP, or the TTIP, Government action changes the market place.  All of a sudden US companies can be faced with a series of flash floods of foreign competition and imports that can simply wipe out US companies.  The US Government must restore the international trade safety net.

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

Commerce’s Trade Adjustment Assistance for Firms (TAAF) has 11 regional (multi-state) TAAF Centers but the program has been cut to only $12.5 million annually. The system has the band-width to increase to a run rate of $50 million.  Projecting a four-year ramp up of $90 million (FY18-FY21), the TAA program could serve an additional 2,150 companies.

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

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

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

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

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

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

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

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

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

Attached is a longer proposal, taaf-2-0-white-paper, on how to expand TAA for Firms/Companies and the MEP Program to make US companies more competitive again.

UNDER TRUMP TRADE CONFLICTS WITH CHINA WILL INCREASE

As readers may remember, my deep dive on the background of this election started with a February conversation and bet with my friend, former Democratic Congressman Don Bonker.  He firmly believed that Hilary Clinton would win in a landslide and the Democrats would win the Senate and the House.

I knew people that were going to vote for Trump and believed that although Clinton would probably win, it would be a close election and the Republicans would probably keep the Senate and definitely the House.  Trump won the election and the Republicans kept the Senate and the House.

Set forth below are Congressman Bonker’s thoughts on what he believes the Trump election means for future US Trade Policy regarding China.

‘Election Results:  U.S. China Relationship

Prepared by: Congressmen Don Bonker (Democrat)

Winston Churchill’s characterization of “democracy as the worst form of government except for all the others” was on full display in America’s 2016 presidential election.   Yesterday’s torrent of election results is revealing of America’s challenges ahead, not only domestically but internationally.  This report is focused on how the election results will affect the U.S. – China relationship.

CANDIDATES WEBSITE/POSITIONS ON CHINA

Hillary Clinton

Increase cooperation in areas of common interest

Reinforce alliances in the Asia-Pacific

Ratchet up the U.S. deterrent against Chinese cyberattacks

Take a stronger stance against China’s human rights record

Donald Trump

Increase U.S. military presence in and around the South China Sea

Investigate and punish China for unfair trade practices

Designate China a currency manipulator

Ratchet up the U.S. deterrent against Chinese cyberattacks

PRESIDENTIAL ELECTION RESULTS.   U.S. presidents are not elected by the popular vote but the so-called Electoral College – each of the 50 states select “electors” equal to the number of Congressmen — that determines the outcome.  The margin is significant in that a sweeping victory with over 300 electoral votes will demonstrate a public mandate that will make the newly elected Presidents’ governing more effective.  This year, Donald Trump’s victory with 289 electoral votes [which is now with Michigan and Arizona 309 votes] is not a big margin but his party being in control of both the Senate and House of Representatives, is a sufficient mandate, something of a populist uprising not seen in recent years.

The election of Donald Trump was unexpected and shocking, even troubling to many in the U.S. and around the world.  The electoral vote is revealing of why and how he won the election – his anti-trade and immigration messages resonated in the four or five rust-belt states that were expected to vote for Hillary Clinton.   Not unlike the Brexit vote, he played to the anger and fear that was directed at Wall Street and Washington, D.C., a movement that will definitely take the country in a new and perilous direction.

Most disconcerting is how a President Trump will conduct foreign policy given that he has no experience compared to Hillary Clinton, who served as Secretary of State and was expected to continue the Obama Administration’s policies and alliances with other countries.  The U.S. China relationship is all about economics and trade, so his Seven-Step Trade Plan is an indication of what lies ahead:

Immediate withdraw from TPP and a renegotiation of NAFTA.

Appoint the “toughest and smartest trade negotiators.

Direct Department of Commerce to “identify every violation of trade agreements a foreign country is currently using to harm our worker” and direct all Federal agencies to use “every tool under American and international law” to end abuses.

Instruct the Treasury Department to label China a currency manipulator, promising that any international devaluation would be met with sharply through tariffs and taxes.

The U.S. Trade Representatives would be instructed to bring trade cases against Beijing under both U.S. laws and the WTO.

If China does not stop its illegal activities, Trump said he would invoke specific safeguards and tariff protections under Section 201 of the Trade Act of 1974.

U.S. China Relationship

In past years, presidential candidates have been known for their “tough talk on China” during campaigns but eventually succumb to the geopolitical realities once they become president.  Donald Trump has gone way beyond tough talk in that he has been relentless in his China bashing and threats to take punishing actions based on unfair trade practices.

More alarming have been his comments threatening the U.S. – China relationship, on one occasion stating that “I’d love to have a trade war with China…if we did no business with China, frankly we will save a lot of money.”  This hopefully is more about rhetoric than policy and a sitting President and his advisors will be more realistic and engage China in ways that will be mutually beneficial.

Ultimately, it’s not so much about the rhetoric and issues but the relationship between the two heads of state.  President Obama and President Xi Jinping had a “trust” working relationship that may not go as easily with Donald Trump, but he is a master negotiator who knows how to work out deals with others.  Much will also depend on who will be his cabinet ministers and senior advisors.

U.S. – International.    Donald Trump’s election has many world leaders concerned given his pledge of radical actions that will project a different America.  For the past 50 years, America has been the undisputed leader worldwide but that is about to change, partly because both Donald Trump’s election is rooted in American anxiety, placing the blame on globalization and trade deals for job losses and economic hardship.  In recent years partisanship and politicalizing of U.S. foreign policy has intensified in a way that inhibits a President’s ability maintain America’s leadership globally.

What does this mean in terms of America’s leadership internationally?  The reverberating message and new mandate that comes out of the election may be alarming to foreign leaders in that a Trump Administration’s foreign policy will be unpredictable, to be sure, on both the economic and geopolitical fronts that will lead to greater uncertainty.  It will definitely be more protectionist given Mr. Trump’s ranting that trade deals have caused job losses and economic hardship.  More perplexing is whether a Trump presidency will abandon America’s alliances and commitments and embark on a course that is more self-serving.

Regardless of who was elected, one of the realities will be China possibly surpassing America as the world’s most powerful nation, which will be a dramatic wake-up call for a country that has proudly embraced this status for the past hundred years.  A Trump presidency taking the country down the path of isolationism may have America backing away from its global responsibilities compared to China’s highly focused set of objectives and its growing presence internationally.  Indeed, China has wisely avoided involvement in geopolitical and security issues, such as the Middle East, and instead is concentrating on economic and investment development, which rapidly advances their leadership standing around the world.

CONGRESSIONAL ELECTIONS    

Two weeks before the election, the Democrats were expected to take control of the U. S. Senate hopefully gaining enough seats to be the Majority Party that would be fully supportive of a Hillary Clinton presidency.  Instead the Republicans will now control both branches of the U.S. government.  However, it will not represent a consensus or cooperation given the deep divisions within the Republican Party, particularly how the Trump candidacy shattered political convention by criticizing Congressional leaders and charting his own path

U.S. Senate.  The Constitution specifies that one-third of the Senate positions are up every election year, which worked to the advantage of Democrats since most of the ballot positions were Republicans.  Yet the election results favored the Republicans who will maintain their 51-45 advantage for the next two years.  The Senate has the Constitutional authority to approve treaties and appointments to high-level positions and ambassadors.  There should be cooperation, given that the same party controls both branches, but Donald Trump has defied the conventional approach to doing business, so this will add to the uncertainty.

House of Representatives.  For the past six years the Republicans have been in control with a significant margin, despite divisions of within the Party that inhibits their ability to be productive.  Prior to the election, the Republicans held 247 of the 435 seats that are up for election every year, a safe margin.  While the Democrats did pick up eleven of the Republican held seats they will continue as the Minority Party for the next few years.

The same party in control of the White House and Congress would normally make for a productive session, but uncertainty lingers given the troubled relationship between Donald Trump and Speaker Paul Ryan.  Prior to the elections, a fractured Republican Party has been unified only by its opposition to President Obama’s policies, like Obamacare, so many questions remain about how the Speaker will preside over his own problems as he prepares to work with a Trump Administration.

In contrast to Congressman Bonker, my belief is that the US China relationship may, in fact, work out better than people think under President Trump.  While in China last month I met many Chinese who liked Trump, despite his trade policy, which was enlightening.

Although Trump will be tough in trade negotiations, Trump is a business man and likes to do deals.  That means he is truly open to negotiations.

Also many Conservative publications, such as the Wall Street Journal and Investors Business Daily (“IBD”), believe that Republican Congressional leaders, such as House Speaker Paul Ryan, may be able to prevent Trump from starting an all-out, hot, trade war against China.

But the US China cold trade war will definitely continue as there will be more US trade actions against China, and more Chinese trade actions against the US.  Both countries will feel the pain.

But the relationship will become even more complicated as the EC in response to the WTO December 11, 2016 deadline to grant China market economy status proposed on November 9th amending its antidumping and countervailing law to provide that although for WTO members normal value is determined on the basis of actual prices and costs in the foreign market, in certain circumstances, e.g., China, where prices and costs are distorted because of government intervention and not free market forces, the EC Commission can look at prices and costs outside China.

EC PROPOSES CHANGES TO ITS ANTIDUMPING AND COUNTERVAILING LAW TO IN EFFECT CONTINUE TO TREAT CHINA AS A NONMARKET ECONOMY COUNTRY

On November 9, 2016 the European Commission issued the attached proposed “Regulation of the European Parliament and Of The Council,” ec-china-market-economy-regs, on the way to calculate normal value for certain nonmarket economy countries, specifically China.

The EC Commission has proposed amending its antidumping law to provide that although for WTO members normal value is determined on the basis of actual prices and costs in the foreign market, in certain circumstances, where prices and costs are distorted because of government intervention and not free market forces, e.g., China, the EC Commission can look at prices and costs outside China, stating specifically if:

domestic prices and costs would not provide a reasonable basis to determine the normal value. This could be the case, for instance, when prices or costs are not the result of free market forces because they are affected by government intervention. Relevant considerations in this respect include, for instance, the fact that the market in question is to a significant extent served by enterprises which operate under the ownership, control or policy supervision or guidance of the authorities of the exporting country; the state presence in firms allowing the state to interfere with respect to prices or costs; the existence of public policies or measures discriminating in favour of domestic suppliers or otherwise influencing free market forces; and the access to finance granted by institutions implementing public policy objectives.

In such circumstances, it would be inappropriate to use domestic prices and costs to determine the value at which the like product should be normally sold (“the normal value”) and a new provision (Article 2(6)a) stipulates that the normal value would instead be constructed on the basis of costs of production and sale reflecting undistorted prices or benchmarks. For this purpose, the sources that may be used would include undistorted international prices, costs, or benchmarks, or corresponding costs of production and sale in an appropriate representative country with a similar level of economic development as the exporting country.

This methodology would allow the Commission to establish and measure the actual magnitude of dumping being practised in normal market conditions absent distortions.

For the sake of transparency and efficiency, the Commission services intend to issue public reports describing the specific situation concerning the market circumstances in any given country or sector. Of importance, the EU industry would be in a position to rely on and refer to the information contained in these reports when alleging in a complaint or a request for review that the domestic prices and costs in the exporting country are unsuitable to determine the normal value. Such reports and the evidence on which it is based would also be placed on the file of any investigation relating to that country or sector so that all interested parties would be in a position to express their views and comments.  . . .

In the light of experience gained in past proceedings, it is appropriate to clarify the circumstances in which significant distortions affecting to a considerable extent free market forces may be deemed to exist. In particular, it is appropriate to clarify that this situation may be deemed to exist, inter alia, when reported prices or costs, including the costs of raw materials, are not the result of free market forces because they are affected by government intervention. It is further appropriate to clarify that in considering whether or not such a situation exists regard may be had, inter alia, to the potential impact of the following: the market in question is to a significant extent served by enterprises which operate under the ownership, control or policy supervision or guidance of the authorities of the exporting country; state presence in firms allowing the state to interfere with respect to prices or costs; public policies or measures discriminating in favour of domestic suppliers or otherwise influencing free market forces; and access to finance granted by institutions implementing  public policy objectives. It is further appropriate to provide that the Commission services  may issue a report describing the specific situation concerning these criteria in a certain country or a certain sector; that such report and the evidence on which it is based may be placed on the file of any investigation relating to that country or sector . . . .

It is further appropriate to recall that costs should normally be calculated on the basis of records kept by the exporter or producer under investigation. However, where there are significant distortions in the exporting country with the consequence that costs reflected in the records of the party concerned are artificially low, such costs may be adjusted or established on any reasonable basis, including information from other representative markets or from international prices or benchmarks. In the light of experience gained in past proceedings, it is appropriate to further clarify that, for the purposes of applying the provisions introduced by this regulation, due account should be taken of all relevant evidence, including relevant assessment reports regarding the circumstances prevailing on the domestic market of the exporting producers and the evidence on which they are based, which has been placed on the file, and upon which interested parties have had an opportunity to . . .

Article 1

Regulation (EU) 2016/1036 is amended as follows:

In Article 2 the following paragraph 6a is inserted:

‘6a. (a) In case it is determined, when applying this provision or any other relevant provision of this Regulation, that it is not appropriate to use domestic prices and costs in the exporting country due to the existence of significant distortions, the normal value shall be constructed on the basis of costs of production and sale reflecting undistorted prices or benchmarks. For this purpose, the sources that may be used include undistorted international prices, costs, or benchmarks, or corresponding costs of production and sale in an appropriate representative country with a similar level of economic development as the exporting country, provided the relevant cost data are readily available. The constructed normal value shall include a reasonable amount for administrative, selling and general costs and for profits.

Significant distortions for the product concerned within the meaning of point (a) may be deemed to exist, inter alia, when reported prices or costs, including the costs of raw materials, are not the result of free market forces as they are affected by government intervention. In considering whether or not significant distortions exist regard may be had, inter alia, to the potential impact of the following: the market in question is to a significant extent served by enterprises which operate under the ownership, control or policy supervision or guidance of the authorities of the exporting country; state presence in firms allowing the state to interfere with respect to prices or costs; public policies or measures discriminating in favour of domestic suppliers or otherwise influencing free market forces; and access to finance granted by institutions implementing public policy objectives.

In Article 11(4), the following subparagraph is added:

‘In the case of a transition from a normal value calculated pursuant to the former Articles 2(7)(a) or 2(7)(b) to a normal value calculated pursuant to paragraphs 1 to 6a of Article 2, any review pursuant to this paragraph shall be deferred to the date on which the first expiry review following such transition is initiated.’

STEEL TRADE CASES

CERTAIN CARBON AND ALLOY STEEL CUT TO LENGTH PLATE FROM AUSTRIA, BELGIUM, CHINA, FRANCE GERMANY, ITALY, JAPAN, KOREA AND TAIWAN

On November 7, 2016, in the attached fact sheet, factsheet-multiple-ctl-plate-ad-prelim-11082016, Commerce announced its affirmative preliminary determinations in the antidumping duty investigations of imports of certain carbon and alloy steel cut-to-length plate from Austria, Belgium, China, France, Germany, Italy, Japan, Korea, and Taiwan.

For Austria, the antidumping rate is 41.97%.  For Belgium, the antidumping rate ranges from 2.41 to 8.5%.  For China, the antidumping rate is 68.27%.  For France, the antidumping rate ranges from 4.26 to 12.97%.  For Germany, the antidumping rate ranges from 0 to 6.56%.  For Italy, the antidumping rate ranges from 6.10 to 130.63%.  For Japan, the antidumping rate ranges from 14.96 to 48.64%.  For Korea the antidumping rate is 6.82%.  For Taiwan, the antidumping rate ranges from 3.51 to 28%.

CIRCULAR WELDED CARBON-QUALITY STEEL PIPE FROM OMAN, PAKISTAN, UNITED ARAB EMIRATES, AND VIETNAM

On October 24, 2016, Commerce in the attached fact sheet, pipe, announced its affirmative final determinations in the antidumping duty (AD) investigations of imports of circular welded carbon- quality steel pipe from Oman, Pakistan, the United Arab Emirates, and Vietnam, and countervailing duty (CVD) investigation of imports of circular welded carbon-quality steel pipe from Pakistan.

For Oman, the antidumping rate is 7.24%.  For Pakistan, the antidumping rate is 11.08% and the countervailing duty rate is 64.81%.  For United Arab Emirates the antidumping rates range from 5.58% to 6.43%.  For Vietnam the antidumping rate ranges from 0 to 113%

FOREIGN ANTIDUMPING AND COUNTERVAILING DUTY LAW AND CASES

UNIVERSAL TRADE WAR CONTINUES

With the election of Donald Trump, as stated in my last newsletter, the Universal Trade War will continue.  In addition to the US bringing antidumping and countervailing duty cases, countries around the World, such as EC, Canada, Mexico, Brazil, Argentina, India, Turkey, Ukraine, Russia, China, Indonesia, Malaysia, Korea, Japan, Taiwan, Australia Thailand, South Africa, and Vietnam, all are filing antidumping and countervailing duty cases against each other and the United States.  These countries have adopted the US law which finds dumping in 90% of the cases.  The US and the EC have created a Frankenstein in the antidumping law and the whole World has adopted it.

Compromise is the best way to settle trade disputes, but it is very difficult, if not impossible, to settle US antidumping and other trade cases.  What is “fair” trade for the United States is “fair” trade for every other country.  Many countries want to make their industries Great again.

Because of this situation, this part of the newsletter will concentrate on antidumping and countervailing duty cases in other countries.

CHINA

Set forth below are two articles by Chinese trade lawyers on how to respond in Chinese trade cases against the United States and other countries.

ROLAND ZHU, ALLBRIGHT LAW FIRM

A General Description of Anti-Dumping Regulation

of the People’s Republic of China

by Roland Zhu, Allbright Law Firm

In order to maintain foreign trade order and fair competition, China’s Ministry of Commerce (hereinafter referred to as “MOFCOM”) is responsible for conducting anti-dumping investigations against foreign exporters in case that imported products enter the market of the People’s Republic of China by way of dumping, and cause material damage or constitute a threat of material damage to an already established domestic industry, or cause a material impediment to the establishment of a domestic industry in accordance with the Foreign Trade Law of the People’s Republic of China, Regulations of the People’s Republic of China on Anti-Dumping and Interim Rules on Placing Cases on File for Antidumping Investigations, which are effective and applicable law.

Where there exists dumping or may exist dumping, an anti-dumping investigation may arise. A complete set of anti-dumping investigation procedure usually follows these steps:

  1. MOFCOM may place a case on file for antidumping investigations upon the application of an applicant; it may also place a case on file on its own initiative for anti-dumping investigations.
  2. MOFCOM shall, within 60 days as of its receipt of the application letter and the relevant evidence submitted by the applicant, examine whether the application is filed by the domestic industry or filed by representing the domestic industry, the contents of the application letter and the evidence attached to it, etc., and shall decide to initiate an investigation or not. Prior to the decision to initiate an investigation, the government of the exporting country (region) concerned shall be notified.
  3. MOFCOM shall publish the decision to initiate an investigation and notify the applicant, the known exporters and importers, the government of the exporting country (region) and other interested organizations and parties (hereinafter collectively referred to as “the interested parties”). As soon as the decision to initiate an investigation is published, MOFCOM shall provide the full text of the written application to the known exporters and the government of the exporting country (region).
  4. MOFCOM may conduct an investigation and collect information from the interested parties by, among other methods, sending questionnaires, using samples, holding public hearings and making on-the-spot verification.
  5. MOFCOM shall, on the basis of its findings, make a preliminary determination on dumping and injury, as well as on whether there exists a causal link between dumping and injury. The preliminary determination shall be published by MOFCOM.
  6. In cases where a preliminary determination on dumping, injury and the causal link between the two is affirmative, MOFCOM shall conduct further investigations on dumping, the dumping margin, the injury and its degree, and, make a final determination on the basis of its findings. The final determination shall be published by MOFCOM. Before the final determination is made, MOFCOM shall inform all known interested parties of the essential facts on which the final determination is based.
  7. An anti-dumping investigation shall be concluded within 12 months from the date of publication of the decision to initiate the investigation, and the period may be extended in special circumstances, but in no case shall the extension be more than 6 months.
  8. The anti-dumping measures taken by MOFCOM shall include provisional anti-dumping measures, price undertakings and anti-dumping duties. The period for applying the provisional anti-dumping measures shall not exceed four months from the effective date set forth in the public notice regarding the decision on provisional anti-dumping measures, and, in special circumstances, may be extended to nine months. The period for the levy of an anti-dumping duty and fulfillment of a price undertaking shall not exceed five years, and may be extended if, as a result of the review, it is determined that the termination of the anti-dumping duty would possibly lead to continuation or recurrence of dumping and injury.
  9. The review proceedings shall be conducted with reference to the relevant provisions of Regulations of the People’s Republic of China on Anti-Dumping. Any review shall be concluded within 12 months from the date of the decision of initiation of such a review.

Answers to General Questions about Chinese Antidumping cases are listed below or you may refer to the general description of Chinese anti-dumping regulations.

  1. Information on recent cases filed in China against other countries

Answer: Please see the table below, which summarizes recent cases filed in China during the year of 2016 against other countries are:

Initiation Date  Subject Merchandise  Investigation Type  Countries

1/12/2016  Dried Distiller Grains        AD and CVD             USA

2/5/2016    Pyridine                                AD Interim Review  Japan and India

4/20/2015   Vinyldine Chloride           Initial AD Review       Japan

Vinyl Chloride Copolymer Resin

9/22/2016     Sugar                        Safeguard       Multiple Countries  including Brazil/Argentina

  1. What agency makes the AD and CVD decision? What agency makes the injury determination? How long does the initial investigation take?  Are there mandatory companies?

Answer: The Trade Remedy and Investigation Bureau of the Ministry of Commerce of the People’s Republic of China (the “Bureau”) makes the AD and CVD decisions as well as the injury determinations. An anti-dumping or countervailing investigation shall be concluded within 12 months from the date of publication of the decision to initiate the investigation, and the period may be extended in special circumstances, but in no case shall the extension be more than 6 months. There are mandatory companies in China’s AD investigation. The applicant, the known exporters and importers, the government of the exporting country (region) and other interested organizations and parties can register to the Bureau in order to participate in this anti-dumping investigation within 20 days from the date of promulgation of the initial announcement. The Bureau selects the respondents among those who have submitted dumping sampling questionnaire by using sampling survey. For other interested parties, including those are not chosen to answer the investigation questionnaire and those don’t register to the Bureau, the Bureau may make determinations on the basis of the facts already known and the best information available.

  1. Is the Chinese antidumping and countervailing duty law prospective or retrospective, retroactive liability? Is there a public interest test? Are there annual reviews?  How long do the orders stay in place?

Answer:  For retrospective issues you mentioned above, according to the Article 93 of Legislation Law of the People’s Republic of China, Chinese antidumping and countervailing duty law shall not be retroactive, but the regulations formulated specially for the purpose of better protecting the rights and interests of citizens, legal persons and other organizations are excepted. The period for the levy of an anti-dumping duty shall not exceed 5 years, and may be extended as appropriate if, as a result of the review, it is determined that the termination of the anti-dumping duty would possibly lead to continuation or recurrence of dumping and injury. A midterm review may be conducted upon request by the interested parties and on the basis of examination of the relevant evidence submitted by the interested parties.

  1. Are there special rules for Non Market Economy Countries?

Answer:  There are no such special rules in China.

Attached are several weekly newsletters, teams-newsletter-en-vol-2016-38 teams-newsletter-en-vol-2016-39 teams-newsletter-en-vol-2016-40, issued by Roland Zhu and his trade group at the Allbright Law Office.

FRANK HANG, GLOBAL LAW OFFICE

How Should Foreign Companies Respond to an Antidumping Investigation in China

  1. Definition of Dumping

According to Chinese Law, dumping consists of three factors-Dumping, Injury and Causation. As for the calculation of Dumping Margin, the following shall be taken into consideration:

  • Dumping Margin= (Normal Value-Export Price)/CIF Price
  • Normal Value and Export Price shall be compared on the same level, usually ex-factory level
  • Comparison: a. weighted average Normal Value to weighted average Export Price; b. transaction-to-transaction comparison of Normal Value and Export Price; c. weighted average Normal Value to each transaction Export Price.

When calculating the Normal Value, the following methods are chosen by MOFCOM:

  • Domestic Sales Price
  • Constructed Value=Production Cost + S G & A + Reasonable Profit
  • Export Price to a Third Country (Region)

In terms of category of AD Duty, China’s normal practice is to assign antidumping rates to producers, not trading companies. And there are 3 different types of rates for the enterprises to bear:

  • Individual Rate
  • Weighted Average Rate
  • Country-wide Rate (Best Information Available, BIA)

When it comes to Injury Analysis, several factors shall be considered by MOFCOM: Imported Volume, Imported Price and other factors such as actual and potential decline of domestic industry in sales, profits, output, market share, productivity, return on investment or utilization of capacity, etc., factors affecting domestic prices; the magnitude of the margin of dumping, the actual or potential negative effects of the dumped imports on the domestic industry’s cash flow, inventories, employment, wages, growth, ability of capital raising or investment, etc.

Cumulative Assessment means that the margin of dumping established in relation to the dumped imports from each country (region) is no less than 2 percent, and the volume of such imports from each country (region) is not negligible. It is negligible if the volume of the dumped imports from a particular country (region) is found to account for less than 3 percent of the total imports of the like products, unless countries (regions) which individually account for less than 3 percent of the total imports of the like products collectively account for more than 7 percent of the total imports of the like products.

  1. AD Investigating Procedures

In China, the AD Investigating Authority is MOFCOM Trade Remedy and Investigation Bureau who is not only in charge of determination of dumping margin but also in charge of determination of injury and causation. 

Following procedures in a Chinese AD Investigation Case: Filing of the Petition are:

Filing Responding Registration, Issuing Questionnaires, Submitting Questionnaire Responses, Preliminary Determination, Public Hearing, On-site Verification, Final Determination, Price Undertaking, Administrative Reconsideration, Administrative Lawsuit, Interim Review, Sun-set Review, New Shipper Review, etc.

Within 10 working days after the deadline of filing the responding registration, the investigating authority will issue questionnaires to the registered companies. If the registered companies are numerous, the investigating authority will use sampling (usually 2 mandatory companies for each country/area).

It is important to note that foreign producers/foreign exporters must submit their responding registration documents to the investigating authority within 20 days as of the date of initiation through a PRC practicing attorney or by themselves. If they fail to do so, foreign producers will be treated as non-cooperative and MOFCOM will use the best information available (“BIA”) to make determination.

For the respondents, when submitting Questionnaire Response, they need to keep in mind that the questionnaire response must be submitted to the investigating authority within 37 days as of the date of the issuance of the questionnaires. The responding companies may apply for extension and the investigating authorities usually only give an extension of 7 days. And the questionnaire responses must be submitted through a PRC practicing attorney. After receiving the questionnaire responses, the investigating authority will review them and issue the supplementary questionnaires if certain questions require clarification or explanation further.

In an Interim Review, an application for interim review shall be filed within 30 days as of the expiration date of each year after the effective date of AD measures. The producers applying for interim reviews must have exported the subject merchandise to China within a period of 12 months prior to the application, and the export referred must have been made in sufficient quantities.

  1. Key Points of AD Defense Strategies
  • Establishing an overall responding strategy before submitting the questionnaire responses to MOFCOM;
  • Collaborating with the respondent’s department of administration, sales, production, finance, in-house counsel, foreign attorneys, PRC attorneys closely and efficiently;
  • Accountant’s role is important in the calculation of dumping margin;
  • Well-prepared for on-site verification;
  • Communicating effectively with MOFCOM officials at different levels;
  • Cooperate with other respondents on non-injury defense;
  • Leverage the exporting country (region)’s government;
  • Obtaining support from importers and down-stream companies.

INDIA

Attached is a newsletter, ls-international-trade-amicus-september-2016, from the Lakshmikumaran & Sridharan Law Firm in New Delhi on Indian antidumping law.

CUSTOMS LAW

ALUMINUM EXTRUSIONS

On October 26, 2016, the Wall Street Journal in an article entitled “Homeland Security Probes U.S. Aluminum Firms Over Chinese Imports” reported that Federal investigators had launched an investigation into whether Liu Zhongtian, a Chinese billionaire and the founder and chairman of aluminum giant China Zhongwang Holdings Ltd., was engaged in transshipment of aluminum extrusions to the United States in violation of US civil and criminal laws.

Commerce is investigating whether a New Jersey company, Aluminum Shapes LLC, imported pallets to remelt as a way to avoid a countervailing duty rate of 374%, part of a broader probe into Mr. Liu’s activities. The Commerce Department said preliminary findings would be released in coming weeks. Aluminum Shapes last month denied that the pallets were used as raw material for its plant.

Homeland Security is also investigating whether nearly one million tons of aluminum shipped to Aluminicaste Fundición de México, a factory once owned by Mr. Liu’s son, were part of an effort to evade U.S. tariffs by routing the metal through another country to disguise its origins.

SECTION 337 AND IP CASES

NEW 337 CASES

OPTICAL FIBERS

On October 31, 2016, DSM Deso Tech, Inc. and DSM IP Assets B.V. filed a 337 patent case against UV Curable Coatings for Optical Fibers, Coated Optical Fibers, and Products from China.  The relevant parts of the ITC notice along with the names of the Chinese respondent companies are below.

Commodity:

UV Curable Coatings for Optical Fibers, Coated Optical Fibers, and Products

Filed By:
Christine E. Lehman

Firm/Organization:
Finnegan, Henderson, Farabow, Garrett, & Dunner, LLP

Behalf Of:

DSM Deso Tech, Inc. and DSM IP Assets B.V.

Description:

Letter to Lisa R. Barton, Secretary, USITC; requesting that the Commission conduct an investigation under section 337 of the Tariff Act of 1930, as amended, regarding Certain UV Curable Coating for Optical Fibers, Coated Optional Fibers, and Products Containing Same. The proposed respondents are Momentive UV Coatings (Shanghai) Co., Ltd., China and OFS Fitel, LLC, Norcross, Georgia.

SWEETENERS

On October 27, 2016, Celanese filed a 337 patent case against High Potency Sweeteners, ACE-K, from China.  The relevant parts of the ITC notice along with the names of the Chinese respondent companies are below.

Commodity:

High-Potency Sweeteners

Filed By:

Joshua B. Pond

Firm/Organization:

Kilpatrick Townsend & Stockton LLP

Behalf Of:
Celanese International Corporation, Celanese Sales U.S. Ltd. and Celanese IP Hungary Bt

Description:

Letter to Lisa R. Barton, Secretary, USITC; requesting that the Commission conduct an investigation under section 337 of the Tariff Act of 1930, as amended, regarding Certain High-Potency Sweeteners, Processes for Making Same, and Products Containing Same. The proposed respondents are Suzhou Hope Technology Co., Ltd., China; Anhui Jinhe Industrial Co., Ltd., China; and Vitasweet Co., Ltd.,   China.

MOBILE ELECTRONIC DEVICES

On October 14, 2016, Qualcomm filed a 337 patent case against Mobile Electronic Devices from China.  The relevant parts of the ITC notice along with the names of the Chinese respondent companies are below.

Received:

Friday, October 14, 2016

Commodity:

Mobile Electronic Devices

Filed By:

Blaney Harper

Firm/Organization:

Jones Day

Behalf Of:

Qualcomm Incorporated

Description:

Letter to Lisa R. Barton, Secretary, USITC; requesting that the Commission conduct an investigation under section 337 of the Tariff Act of 1930, as amended, regarding Certain Mobile Electronic Devices. The proposed respondents are Zhuhai Meizu Technology Co., Ltd., China; Zhuhai Meizu Telecom Equipment Co., Ltd., China; Dest Technology Limited, China; LGYD Limited, China; and Overseas Electronics, Inc., Chicago, IL.

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

Best regards,

Bill Perry

 

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

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

“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”

PRESIDENT RONALD REAGAN, JUNE 28, 1986

US CHINA TRADE WAR NEWSLETTER JANUARY 11, 2015

Dear Friends,

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

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

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

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

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

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

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

NEWSLETTER

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

TRADE –– SOLAR PRODUCTS AND SOLAR CELLS CASES

SOLAR PRODUCTS

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

SOLAR CELLS

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

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

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

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

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

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

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

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

US CHINA SOLAR NEGOTIATIONS

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

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

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

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

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

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

IMPACT OF SOLAR CASE ON US INDUSTRY

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

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

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

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

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

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

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

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

According to the Press Release,

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

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

FACTS AVAILABLE CHANGE

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

“SUBSIDY RATES AND DUMPING MARGINS IN ADVERSE INFERENCE DETERMINATIONS:

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

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

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

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

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

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

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

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

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

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

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

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

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

“Use of facts available: . . .

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

As the WTO further stated in its determination:

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

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

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

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

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

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

The WTO Appellate Body went on to state:

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

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

In its conclusion, the WTO determines:

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

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

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

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

MARKET ECONOMY CHANGE

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

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

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

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

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

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

 “Price Comparability in Determining Subsidies and Dumping . . .

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

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

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

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

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

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

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

 IMPORT ALLIANCE FOR AMERICA

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

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

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

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

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

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

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

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

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

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

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

TRADE POLITICS AND TRADE AGREEMENTS

ONE ISSUE MOVING IN CONGRESS NEXT YEAR—TRADE

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

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

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

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

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

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

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

US CHINA TRADE AGREEMENTS

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

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

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

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

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

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

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

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

Like everyone in the room, we are disappointed not to be celebrating a deal this week. We missed a big opportunity. All of us will need to go back to our capitals and reflect hard on next steps.”

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

 TPA FACED HEADWINDS IN CONGRESS BUT THEN THE ELECTION HAPPENED

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

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

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

But then came the November 4th Republican wave election changing Trade Politics dramatically in Washington DC. Elections have consequences and in 2015 Republicans have taken the Senate and increased their numbers in House.

To summarize, on January 9, 2014, the Bipartisan Congressional Trade Priorities Act of 2014, which is posted on my blog in the January 2014 post, was introduced into Congress. The TPA bill gives the Administration, USTR and the President, Trade Promotion Authority or Fast Track Authority so that if and when USTR negotiates a trade deal in the TPP or the Trans-Atlantic negotiations, the Agreement will get an up or down vote in the US Congress with no amendments.

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

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

On July 17th, all Republican members of the House Ways and Means Committee sent a letter to USTR Froman, which is posted on my blog, urging the Administration to build support for Trade Promotion Authority (TPA) and directing the Administration not to complete the Trans-Pacific Partnership (TPP) before TPA is enacted into law.

On November 4th, the Republican Wave Election took place.

Now the story continues . . . .

As indicated above, on December 3, 2014 at a Business Roundtable Meeting in New York City President Obama vowed to continue working with Congressional leaders on the TPA and the TPP deals.

Although there was substantial optimism about the President’s ability to work with the Republican Congress on trade policy, on December 5th Congressman Sander Levin, the top Democrat on the House Ways and Means Committee, continued to express skepticism over the Trans-Pacific Partnership. Congressman Levin told reporters that his many questions on the TPP regarding issues, such as agricultural market access, labor rights and currency manipulation rules, remain unanswered. He called on the Obama administration to give Congress a more prominent role in closing the deal. As Congressman Levin stated,

“I want there to be set up some structure so that there is regular consultation with the committees of jurisdiction as the negotiations ensue so that there is … full discussion of what is in the documents, and of what is being proposed by the administration, and what are the positions of other countries, and what are the likely bottom lines of this administration.”

Although the USTR has been continually briefing Congress on the TPP, Levin claimed that policy amounts to “considerable consultation” without “meaningful involvement” from the legislative branch. Levin stated that the administration’s positions on key areas remain shrouded in mystery. “At this point, can I tell you what is the administration’s position on tobacco? The answer is no. Can I tell you where they are on agriculture? No.”

Levin further stated:

“If you put the focus on TPA when you have so many outstanding issues, essentially what it does is force or stimulate members to say ‘yes’ or ‘no’ to TPP before so many of the outstanding issues have been resolved. So essentially I think it makes it more difficult, not less difficult, to get an effective TPP.”

On December 5, 2014, four Democratic Congressmen sent the attached letter, ACTUAL LETTER DEMS LABOR, to the Obama Administration stating that the Administration should use the TPP negotiation to push for labor reforms regarding the use of child and forced labor, specifically in Vietnam, Mexico, Peru and Malaysia. The four Congressmen/women stated:

December 4, 2014

In May, we wrote to you with 149 of our colleagues calling on you not to pursue the same approach to labor rights in free trade agreements that has failed in past pacts. In response, you noted that our free trade partners have made efforts to improve their labor conditions and that the proposed Trans-Pacific Partnership (TPP) “allows the United States to take a leading role in shaping global trade policy by raising standards, allowing us to make progress toward a global trading system that reflects our core values.”

However, a recent report by the Labor Department’s Bureau of international Labor Affairs (ILAB) disputes that assertion, and we have no indication that U.S. negotiators are taking a new approach to ensure labor rights are protected.

ILAB’s annual List of Goods Produced by Child Labor or Forced Labor report sheds light on some of the worst forms of labor abuses worldwide, and highlights the countries that produce goods using child and forced labor. Vietnam, Mexico, Peru, and Malaysia, one-third of the nations included in the TPP, were all cited for labor abuses in the report.

We are following up with you because we believe it is important that you take action to ensure that real, meaningfully enforceable labor protections are in the TPP, and we request a briefing for Members of Congress to better understand what specific new measures are being developed and what new assurances are being put in place during TPP negotiations.

The report has particularly troubling findings on several TPP member nations. Only four countries globally are cited for forced and child labor in their apparel sector, including Vietnam.

Over the course of the last year of TPP negotiations, electronics products from Malaysia were added to the list of goods produced through forced labor. Malaysia is one of only seven countries in which the Labor Department found worsening child or forced labor conditions in 2014. In addition, the report identified child labor violations in eleven sectors in Mexico- the fifth broadest usage of child labor cited in the report. By comparison, China uses child labor in six sectors.

Free trade agreements with nations that violate international child labor and forced labor standards not only undermine our moral authority, but they also capitalize on the lack of oversight and regulation in developing nations. Here in this country, we have fought hard to protect our workers, yet, our free trade policy undermines those protections by sending American jobs to countries that do not play by the rules. . . .

We have a responsibility to ensure that under no circumstances is it acceptable for children to work in sweatshops to produce the goods we consume. We can and must do better.

It is critically important that we make stronger efforts to end these worker abuses, with the Administration’s ongoing push for trade promotion authority, these ongoing issues must first be addressed.

Reps. Rosa DeLauro, D-Conn., George Miller, D-Calif., Loretta Sanchez, D-Calif., and Mark Pocan, D-Wis.

It should be noted as reported in past blog posts, the United States too uses “forced labor” prison labor to produce products. In fact, the Justice Department’s Business Development Group, Federal Bureau of Prisons, is presently soliciting manufacturing business from various companies. The Federal Bureau of Prisons is presently producing wood flooring and other products in the United States. I have been told that Canada recently stopped exports of wood flooring products from the United States, which were produced with prison labor.

In response to the Congressional letter, President Obama stated that his effort to revive TPA — which has not been in effect since 2007 — will require outreach to labor unions, which have traditionally been skeptical of trade liberalization.

On December 8th, labor unions, environmentalists and other opponents of the Trans-Pacific Partnership on Monday descended on Washington, D.C., to protest the latest round of negotiations, reiterating their claims that the pact will ravage the American workforce and place business interests above those of consumers.

On December 11, 2014 incoming House Ways and Means Trade Subcommittee Chairman Republican Pat Tiberi of Ohio, stated that while Republicans have been pleased with President Barack Obama’s bipartisan approach to a growing slate of trade policy issues next year, the White House will need to step up its engagement to ensure optimal results. In response to President Obama’s Business Roundtable speech, Tiberi stated:

“We are hopeful, but one speech does not provide enough leadership to get all this done. The trade representative is a very good one and we look forward to working with him. But at the end of the day, it’s got to be the President and he is going to have to show leadership and I think he may on this one.”

Tiberi, who has been in the House for 14-years and has served on Ways and Means since 2007, stated that he will do all he can to make sure the president’s bipartisan sentiments trickle down to the members on his panel and throughout the committee, stating:

“I am a big believer in trying to work with the other side. Having the President provide leadership on trade — and it appears as though he may — is pretty exciting with a Republican Senate and a Republican House in what is clearly the best opportunity since the President became President to do something on trade.”

Tiberi further stated:

“I think giving authority to persons within the administration to negotiate in the best interests of the United States is the best way to actually get a trade agreement, because there are a lot of complex issues that go into these negotiations both from our perspective and our potential trading partners’ perspective as well.”

Tiberi also stated that while lawmakers should always urge the administration to be more forthright about its negotiating efforts, the criticisms of trade agreements as job killers are largely misplaced, as those arguments ignore the jobs created by opening export markets and creating new investment opportunities. As Tiberi stated, “If the shoe were on the other foot and I were the U.S. trade representative, I wouldn’t necessarily be offended because I think we could always do a better job on the issue of transparency.”

On December 14th, Prime Minister Abe won reelection in Japan with a landslide, which will give Japan more flexibility in the TTP negotiations.

On January 5, 2015, after the new Congress was sworn in, US Senator Bernie Sanders, an independent that is on the Democratic side, attacked the Obama administration for an “incomprehensible” lack of transparency surrounding the ongoing Trans-Pacific Partnership negotiations and called for the release of the full version of the current TPP text.

In a letter to U.S. Trade Representative Michael Froman, Sanders said it was “troubling” and “unacceptable” that he and other lawmakers have only been able to get a thorough look at the TPP deal through unofficial leaks of various chapters. The Senator further stated:

“It is incomprehensible to me that the leaders of major corporate interests who stand to gain enormous financial benefits from this agreement are actively involved in the writing of the TPP while, at the same time, the elected officials of this country, representing the American people, have little or no knowledge as to what is in it. In my view, this is simply unacceptable.”

Sanders emphasized that Congressional review of the TPP deal text is mandatory because any trade agreement will not be open for amendments if the Administration reaches a deal to renew the president’s expired Trade Promotion Authority this year.

The Senator gave the USTR a deadline of Jan. 16 to provide him with a copy of the full composite text, without redactions, and requested that staff and experts of his choosing also be allowed access to the documents to take notes and “analyze the relevant statutory and economic implications” of the deal.

The USTR has repeatedly stressed that it will publish the TPP text “well before” it is signed to invite further comment from stakeholders. The agency also says it has a longstanding policy of giving members of Congress access to confidential documents on request, but some lawmakers have complained of procedural problems in getting access to the dcouments.

Sanders added that if his request is not fulfilled, he would like a full legal justification for USTR’s refusal and also vowed to file a bill that would mandate the publication of trade negotiating texts at the request of any member of Congress.

The Vermont independent sharply criticized Froman’s office for placing the interests of large multinational corporations over those of U.S. citizens and for gradually chipping away at the legislative branch’s oversight of international trade, stating:

“The Constitution of the United States gives Congress ‘the authority to regulate commerce with foreign nations. That is not my language. That is the Constitution of the United States of America.”

On January 6, 2015, after meeting in Washington D.C., US and Mexican government officials agreed to continue their efforts to finalize the ongoing TPP negotiations as soon as possible. In a Joint Statement the two countries said:

“We have made significant progress over the past year in setting the stage to finalize a high-standard and comprehensive agreement. With the end coming into focus, the United States, Mexico and the other 10 TPP countries are strongly committed to moving the negotiations forward to conclusion as soon as possible. The substantial new opportunities for U.S. and Mexican exporters that the TPP will offer will be enhanced by our work together in the HLED.”

A senior White Official also stated:

“We’re working closely together to conclude the historic Trans-Pacific Partnership trade agreement early this year. The leaders are most likely to focus on the dynamics of the various countries as we’re coming to the end of the negotiations of TPP. We think that there’s a chance to get this done in the relatively near future.”

On January 7, 2015, the AFL-CIO labor union called on the Obama administration to push for far-reaching improvements to Mexico’s labor and human rights regime and raised the possibility of dropping Mexico from the 12-nation Trans-Pacific Partnership talks if those reforms are not swiftly implemented.

AFL-CIO President Richard Trumka stated in a letter to President Obama:

“Mexico must eliminate the corrupt system of labor boards and allow workers to choose their representatives in a democratic manner free from intimidation. As a party to the ongoing Trans-Pacific Partnership negotiations, U.S. negotiators must demand that Mexico implement changes prior to entering into any trade agreement, as current laws are not in compliance with any credible labor chapter. . . .

The U.S. and Mexican government must work cooperatively to ensure that goods made with forced and child labor are not exported into the U.S. market. The Mexican government must vigorously enforce its labor laws in the agricultural sector and step up its efforts to combat child labor — not by criminalizing child workers and their families, but by providing educational opportunities and incentives.”

On January 7, 2015, Republican leaders started moving in both chambers of the U.S. Congress to build the case for renewing TPA indicating that a bill will be introduced in the early part of the year.

Senate Majority Leader Mitch McConnell, R-Ky., stated that talks to reinstate Trade Promotion Authority have been underway for some time and reiterated his belief that trade remains a critical area in which the Republican majority in Congress and President Barack Obama can find common ground, stating:

“We’re in active discussion on … trade promotion authority. It’s an enormous grant of power, obviously, from a Republican Congress to a Democratic president, but that’s how much we believe in trade as an important part of America’s economy.”

But neither McConnell nor Senate Finance Committee Chairman Orrin Hatch, R-Utah, could offer a specific
timetable for the legislation to be introduced, indicating that lawmakers are still ironing out the final details of the bill.

As McConnell further stated, “We think this is an area where we can make progress, and you can look for us to act on TPA,” I can’t give you the exact timing right now, or if I could, I probably wouldn’t yet.”

All of the political gamesmanship between Obama and Congress appears to have disappeared.  A spokesman for House Speaker John Boehner, R-Ohio, on Tuesday issued a statement urging the president to highlight the need for fresh TPA legislation in speech to Michigan auto workers.

Boehner spokesman Cory Fritz stated,

“The president can begin this year with yet another campaign-style event to try and take credit for an economy that Americans know could be doing a lot better, or he can stand up to those in his own political party and begin building a coalition to help boost American exports and job creation,” .

McConnell said he was happy that the president had become a “born-again free trader,” but stressed that Obama would have to weather resistance from traditional Democratic trade opponents if he is to be taken seriously in the quest to reinstate TPA.

“The big challenge for the president is going to be to get his own members to give him the authority to negotiate this deal and to send it up to us. He’s going to have to stand up to the AFL-CIO, he’s going to have to stand up to the political left and his party and help us do something important for the American people in the middle, the moderate center.”

TPP FOR CHINA??

On October 15th, the Peterson Institute for International Economic (”IIE”) released a study touting the benefits of a theoretical free trade agreement between China and the United States, including increased income and export gains, while also acknowledging that such an agreement could lead to 500,000 to 1 million lost U.S. jobs over a 10-year span. The opening chapter as well as an IIE powerpoint are attached.  IIE FREE TRADE AGREEMENT CHINA US CHINA FTA FIRST CHAPTER

On December 3, 2014, former U.S. Trade Representative Carla Hills in comments to the National Foreign Trade Council called for a free trade arrangement between the U.S. and China as a way of easing economic tensions and promoting better trade flows for international supply chains. Hills listed three possible options: bringing China into the Trans-Pacific Partnership (TPP) agreement; negotiating a separate free trade agreement with China; or completing a series of agreements, such as a bilateral investment treaty or through an expanded Information Technology Agreement, which would liberalize U.S-China trade on a sector basis.

Hills, who sits on the Board of the Peterson Institute for International Economics (IIE), pointed to the Study. The Report stated that trade could increase exponentially on both side, but could lead to 500,000 to 1 million lost U.S. jobs over a 10-year span.

As stated in my prior post, that is where Trade Adjustment Assistance for Companies comes into play. The Peterson study contends that because the economic benefits equate to roughly $1.25 million in national income gains per job lost, the U.S. should consider policy alternatives to offset job loss rather than simply abandon an FTA with China.

On December 10th, in a speech to the Export Council, President Obama invited China to follow TPP Rules, though not as a formal member, stating:

“And we hope that … China actually joins us, in not necessarily formally being a member of TPP, but in adopting some of the best practices that ensure fairness in operations.”

President Obama further stated, “They [China] will take whatever they can get. They will exploit every advantage that they have until they meet some resistance.”

Echoing a statement by Chinese President Xi Jinping at the APEC meeting, however, Obama also stated China has a “great interest in the relationship with the United States and [recognizes] the interdependence that has evolved between our two economies.” Everything the U.S. is trying to do in TPP has a “direct application” to China, which could be a reference to establishing new disciplines on state-owned enterprises and intellectual property protection.

Overall, Obama said the “key” to the U.S. trade relationship with China is to “continue to simply press them on those areas where trade is imbalanced, whether it’s on their currency practices, whether it’s on IP protection, whether it’s on their state-owned enterprises.” He said the bilateral investment treaty in which China has “shown an interest in negotiating could end up being a significant piece of business.”

The president also touted the breakthrough in the negotiations to expand the Information Technology Agreement (ITA) that the U.S. reached with China during the president’s trip to Asia last month. “And I think that it’s indicative of [China’s] interest in trying to get this right.”

CHINA AUSTRALIA FTA

On November 17th, Australia and China signed a free trade agreement to allow greater Australian agricultural exports and greater investment in China and increased Chinese exports to Australia. According to the Australian Prime Minister, the Agreement is predicted to add billions to the Australian economy create jobs and drive higher living standards.

INDIA US BILATERAL DEAL MOVES TRADE FACILITATION AGREEMENT FORWARD

 On November 27, 2014, the Trade Facilitation Agreement, which had been blocked by India, was back on track after a vote at the WTO. The TFA simplifies and harmonizes customs procedures and mandates customs reforms such as introducing transparency, risk based management by customs administrations, a “single window” for all government agencies dealing with imported merchandise, automation, electronic payment of duties and the separation of the payment of duties from the release of cargo, among other things. These improvements are intended to facilitate trade across borders, thereby reducing the costs for international traders and ultimately consumers.

On December 11th, the WTO reported that Hong Kong was the first country to ratify the Trade Facilitation Agreement, which will streamline global customs rules.  Irene Young , Hong Kong’s representative stated that “A multilateral TFA, which can significantly enhance trade flows, is very important to Hong Kong, China, and I believe it is no less so for other economies. Ultimately, the agreement will benefit all of us, but that is only possible when it actually comes into effect.”

In response, WTO Director-General Roberto Azevedo stated:

“I hope that other members will gain inspiration from this and will soon be able to follow Hong Kong, China’s lead.”

The TFA needs to be ratified by two-thirds of the WTO’s members to come into effect.

TRADE ADJUSTMENT ASSITANCE PROGRAM—REAUTHORIZATION

As stated in my last blog posts, I have made the case for the Trade Adjustment Assistance Program for Firms/Companies, which is presently funded at $16 million nationwide.

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

“Fund TAA at the previous level of $575 million and Trade Adjustment Assistance for Firms at $50 million to provide financial assistance and expertise to import-affected manufacturers to help them become more competitive.”

In talking to one TAAC in the Midwest, the problem is that the money is so low that there are companies lined up to get assistance, but the money is committed as soon as it is authorized, so many companies will not get this vital assistance.

To summarize, on December 8th, a number of Democratic Congressmen, including ranking Ways and Means member, Sander Levin, and Congressmen Adam Smith and Derek Kilmer from Washington wrote in the attached letter, HOUSE CONGRESSIONAL LETTER, to Speaker Boehner and Minority Leader Nancy Pelosi asking that that the program be reauthorized:

“December 8, 2014

Dear Speaker Boehner and Leader Pelosi, . . .

We write to call your attention to the fast-approaching expiration of the Trade Adjustment Assistance (TAA) program and urge you to bring legislation to the floor that would enable this effective program to continue assisting both firms and workers beyond December 31, 2014.

Since its inception, TAA has helped both workers and businesses cope with job losses resulting from increased global competition. According to the U.S. Department of Labor (DOL), approximately two million workers nationwide have relied on TAA for Workers (T AAW) since 1975 to make ends meet and receive training necessary to find a new job in high-skill, growing industries. In addition, according to the Economic Development Agency’s 4th annual report, 882 trade-impacted firms have received assistance through TAA for Firms (TAAF) in 2013. These firms employed over 76,000 workers at the time of their entry into TAAF and at least one firm was located in 48 of the 50 states throughout the country.

TAAW not only helps hard-working Americans whose jobs have been adversely impacted by trade, but it allows those workers to reenter the workforce and contribute to our economy with better skills and training. The program provides training assistance and income support enabling dislocated workers to retrain for employment in competitive industries. The success of this program is proven by the fact that 75 percent of TAA workers secured a job 6 months after leaving the program and 90 percent of those workers remained employed a year thereafter.

TAAF is another critical component of this program that effectively assists U.S. companies impacted by imports remain competitive. TAAF offers a matching fund for outside expertise to help companies adjust their business models allowing them to regain their competitive advantage in the marketplace. The program makes it possible for companies to avoid layoffs, or, where layoffs have occurred, to rehire workers as the companies regain their competitive footholds. In the most recent report by the Department of Commerce on T AAF, it is reported that all the U.S. companies that were beneficiaries in 2011 were still in business in 2013.

TAA is a critical part of our nation’s competitiveness strategy in the face of a rapidly evolving world economy and its reauthorization enjoys bipartisan support. Congressional leadership and action to reauthorize TAA is needed to stop the termination of an effective program that helps American workers and firms compete, innovate, strengthen, and diversify America’s economy. We must do all we can to save jobs by helping firms readjust and workers regain their edge and competitiveness in the global marketplace.”

TAA for firms will become even more important with the passage of any free trade agreement, including the TPP.

ANTIDUMPING, COUNTERVAILING DUTY AND OTHER TRADE CASES

CIRCUMVENTION OF ALUMINUM EXTRUSIONS ORDER??

On December 11, 2014, in the attached letter to Assistant Secretary Paul Piquado at the Commerce Department, MCCONELL ALUMINUM EXTRUSIONS, Senate Majority leader, Mitch McConnell pressed Commerce on circumvention of the US antidumping order on Aluminum Extrusions from China stating:

“I write on behalf of my constituents at Kentucky’s Cardinal Aluminum. Cardinal, an aluminum extruder, employs over 500 people in Louisville and plays a vital economic role in the Commonwealth. My constituents have informed me that unfair trade practices from China are once again threatening Kentucky jobs.

In 2012. I introduced legislation with my Senate colleagues that-once enacted into law- allowed the Department of Commerce (DOC) to impose countervailing duties on certain imports from communist and nonmarket countries. This law and DOC’s subsequent implementation of countervailing duties and anti-dumping measures on a number of U.S. imports subsidized by foreign governments helped protect over a thousand Kentucky jobs.

Unfortunately, my constituents have informed me that they believe certain exporters are engaged in aluminum alloy dumping activities in the U.S. market. My constituents have conveyed to me that these and related injurious trade practices abroad have already led to a reduction in more than 75 jobs and threaten additional Kentucky jobs if no action is taken.

I am told that your department plans to review the scope of countervailing duties and anti-dumping duties that are intended to prevent these abuses of international trade practices. In addition to their concerns surrounding potential dumping activities, my constituents have expressed to me their concerns regarding the metrics involved in this review process.

As your department proceeds with its review and other related investigations to curb unfair trade practices, I ask that you give full and fair consideration to the concerns of my constituents. I have enclosed their correspondence for your convenience.

Thank you for your time and attention to this matter. I look forward to receiving your response.

Sincerely,

Mitch McConnell”

United States Senator

JANUARY ANTIDUMPING ADMINISTRATIVE. REVIEWS

On January 2, 2015, Commerce published the attached Federal Register notice, JANUARY REVIEWS, regarding antidumping and countervailing duty cases for which reviews can be requested in the month of January. The specific antidumping cases against China are: Crepe Paper Products,   Ferrovanadium, Folding Gift Boxes, Potassium Permanganate, and Wooden Bedroom Furniture.

The specific countervailing duty cases are Oil Country Tubular Goods and Circular Welded Carbon Quality Steel Line Pipe.

For those US import companies that imported Potassium Permanganate, Wooden Bedroom Furniture, OCTG and the other products listed above from China during the antidumping period January 1, 2014-December 31, 2014 or during the countervailing duty review period of 2014 or if this is the First Review Investigation, for imports imported after the Commerce Department preliminary determinations in the initial investigation, the end of this month is a very important deadline. Requests have to be filed at the Commerce Department by the Chinese suppliers, the US importers and US industry by the end of this month to participate in the administrative review.

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

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

RUSSIA—US SANCTIONS AS A RESULT OF UKRAINE CRISIS

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

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

The sanctions will eventually increase more with the Congressional passage of the Ukraine Freedom Support Act, which will be attached to my blog, which President Obama signed into law on December 19, 2014.

Although the law provides for additional sanctions if warranted, at the time of the signing, the White House stated:

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

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

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

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

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

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

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

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

The facilitation of any such transactions.

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

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

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

On December 22, 2014, Russian oil giant Rosneft NK OAO on Monday dropped its bid to buy Morgan Stanley’s oil-trading and storage business, citing an “objective impossibility” of gaining regulatory clearance amid tense international relations in the wake of ongoing sanctions against Moscow.

IP/PATENT AND 337 CASES

337 CASES

There have been developments at the US International Trade Commission (“ITC”) in 337 cases and patent area.

In the attached petition, PRINT CARTRIDGES 337 PETITION, on December 23, 2014, Seiko Epson filed a new 337 patent case against Certain Ink Cartridges and Components Thereof against the following Chinese companies and US importers:

Zhuhai Nano Digital Technology Co., Ltd.; Nano Business & Technology, Inc.; Zhuhai National Resources & Jingjie Imaging Products Co., Ltd.; Huebon Co., Ltd.; Chancen Co.; Ltd.; Zhuhai Rich Imaging Technology Co., Ltd.; Shanghai Orink Infotech International Co., Ltd.; Orink Infotech International Co.; Ltd., Zinyaw LLC; Yotat Group Co., Ltd.; Yotat (Zhuhai) Technology Co., Ltd.; Ourway Image C0., Ltd.; Kingway Image Co., Ltd.; Zhuhai Chinamate Technology, Co., Ltd.; InkPro2day, LLC; Dongguan 0cBestjet Printer Consumables Co., Ltd.; OcBestjet Printer Consumables (HK) Co., Ltd.; Aomya Printer Consumables (Zhuhai) Co., Ltd.; and Zhuhai Richeng Development Co., Ltd.

PATENT AND IP CASES IN GENERAL

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

On November 25, 2014, the attached new patent infringement complaint was filed by Invue Security Products, Inc. v. Hangzhou Langhong Technology Co., Ltd. and Langhong Technology USA Inc.  HANGZHOU PATENT

On December 5, 2014, the attached new patent infringement complaint was filed by Ultratech, Inc. dba Ultratech Cambridge Nanotech versus Esnure Nanotech (Beijing) Inc., Ensure Nanotech LLC d/b/a Ensure Scientific Group LLC and Dongjun Wang. CHINA NANOTECH PATENT CASE

On December 5, 2014, the attached new patent infringement complaint was filed Harvatech Corp. vs. Cree Inc., Cree Hong Kong Ltd., and CREE Shanghai Opto Development Ltd. CREE HONG KONG

On December 10, 2014, the attached new patent complaint was filed by Optical Tech IP LLC v. Huawei Technologies USA Inc. HUAWEI

On December 16, 2014, the attached new patent infringement complaint was filed by Hitachi Maxwell Ltd. vs. Top Victory Electronics (Taiwan Co. Ltd.), TPV International USA Inc., Envision Peripherals Inc., Top Victory Electronics (Fujian) Co., Ltd., TPV Electronics (Fujian) Co. Ltd., TPV Technology Ltd., and TPV Display Technology (Xiamen) Co., Ltd. XIAMEN FUJIAN PATENT CASE TVS

On December 18, 2014, the attached new patent complaints were filed Dynamic Hosting Company LLC versus Huawei Technologies USA Inc. and ZTE (USA) Inc. HUAWEI DYNAMIC HOSTING ZTE DYNAMIC HOSTING

On December 31, 2014, the attached new patent complaint was filed by Adaptive Data LLC versus Huawei Technologies USA Inc., Huawei Device USA Inc. and Huawei Technologies Co., Ltd. HUAWEI3

PRODUCTS LIABILITY

On December 10, 2014, the attached products liability complaint was filed by Diana Alvarez Gonzales et al v. Shandong Linglong Tyre Co., Ltd., Horizon Tire, Inc., Horizon Tire Corp., Bridgestone Americas Tire Operations LLC., and GCR Tire. SHANDONG TYRE COMPANY

On December 26, 2014, Tower Insurance Company filed the attached products liability complaint against Jarden Corp., Sunbeam Products, Inc. and Foshan Shunde Toppin Electrical Technology Co., Ltd. CHINESE HEATER PRODUCTS LIABILITY COMPLAINT

US CHINA TRADE WAR-DEVELOPMENTS IN TRADE, TRADE ADJUSTMENT ASSISTANCE, CUSTOMS, IP/337, ANTITRUST AND SECURITIES

Jinshang Park from Forbidden City Yellow Roofs Gugong Palace Bei“TRADE IS A TWO WAY STREET”

“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”

PRESIDENT RONALD REAGAN, JUNE 28, 1986

US CHINA TRADE WAR NEWSLETTER OCTOBER 16, 2014

Dear Friends,

There have been major developments in the trade, trade adjustment assistance, Trade Agreements, Customs, 337/IP, US/Chinese antitrust, and securities areas.

TRADE PROTECTIONISM INCLUDING UNFAIR TRADE CASES DO NOT WORK

The problem with trade protectionism, including “unfair” antidumping and countervailing duty cases, is they do not work. Antidumping and countervailing duty cases do not accomplish their objective of protecting the US industry from “unfair” imports.

Note the quotes around unfair, because in the context of China, since the United States refuses to use actual prices and costs in China to determine whether Chinese companies are dumping, the US government simply does not know whether the Chinese companies are dumping.  Instead for the last 30 years Commerce has used Alice in Wonderland surrogate values from surrogate countries that have no relationship with economic reality in China to construct the “cost” of production in China.

With regard to accomplishing its objective of protecting the domestic industry, however, as stated in my January newsletter, on June 28, 1986 in his attached speech from his Santa Barbara ranch, BETTER COPY REAGAN IT SPEECH, President Ronald Reagan realized the simple point that trade restrictions, including unfair trade cases, do not work. As President Reagan stated:

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

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

By this time, of course, the protected industry is so listless and its competitive instincts so atrophied that it can’t stand up to the competition. And that, my friends, is when the factories shut down and the unemployment lines start.

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

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

Emphasis added.

President Reagan understood the inherent dangers of trade protectionism. As Winston Churchill stated, those who do not learn from history are doomed to repeat it.

A 21st TRADE ADJUSTMENT ASSITANCE PROGRAM—A MODEST PROPOSAL

While in Washington DC two weeks ago to discuss the Trade Adjustment Assistance for Firms program, I was told by senior aides in a position to know that Unions no longer favor trade adjustment assistance (“TAA”) and instead oppose the new trade agreements, including the Trans Pacific Partnership and Trans-Atlantic (TA)/ the Transatlantic Trade and Investment Partnership. As the senior aide also mentioned to me, in all likelihood, TPP and TTIP will go through eventually, but the Trade Adjustment Assistance Programs may die.

As readers of this newsletter know, I am on the Board of Directors of the Northwest Trade Adjustment Assistance (“NWTAAC”). We provide trade adjustment assistance to companies that have been injured by imports.

As mentioned in previous newsletters, the Trade Adjustment for Firms (“TAAF”) program is the only Trade Program that works. In my over thirty years of experience in the international trade area, first in the US Government and later defending US importers and end user companies in antidumping cases, there is one overarching lesson that I have learned–protectionism simply does not work. US industries that cannot compete in global markets cannot run from global competition by bringing trade cases.

These cases simply fail to protect the domestic industry from import competition. In response to antidumping orders, Chinese furniture and tissue paper companies have moved to Vietnam, where labor rates are LOWER than China. While in private practice and later at the International Trade Commission (“ITC”) and Commerce Department, I watched Bethlehem Steel bring more than a hundred antidumping and countervailing duty cases against steel imports from various countries, receiving protection, in effect, from imports for more than 30 years. Where is Bethlehem Steel today? Green fields. When faced with import competition, it is simply too difficult to bring antidumping cases against all the countries in the world, which have lower priced production than the US.

With regards to trade adjustment assistance, however, there are two programs. The major trade adjustment assistance is the $1 billion program for employees/workers that have been injured by imports and the smaller $16 million TAAF program.   TAAF happened as an adjunct to TAA for Workers.

Congress started the TAA adjustment assistance programs in 1962 as part of the Trade Expansion Act and as a means of securing support for the Kennedy Round of multilateral trade negotiations. Trade Adjustment Assistance essentially was a tradeoff. If Unions and Workers would support trade liberalization, including free trade agreements, workers would be compensated because of the disruption caused by increased imports.

Many free market Republican types attack the TAA for workers as simply another entitlement that does not need to be paid and can be covered by other programs. In the early 1980s, President Reagan himself put in requirements to set up standards so that Trade Adjustment Assistance for Workers would not simply be an open ended entitlement.

But my belief is that President Reagan indirectly approved the Trade Adjustment Assistance Program for Firms/Companies. Why? Jim Munn.

As stated in the attached 2002 obituary, JIM MUNN, Jim Munn was a famous criminal lawyer in Seattle and an early supporter and personal friend of Ronald Reagan. When I started to get involved in the Northwest Trade Adjustment Assistance Center, I was told that the Center was in place because President Reagan himself asked Jim Munn to look into the program.

Both President Reagan and Jim Munn were firmly opposed to government interference in the marketplace. What did Jim Munn discover when he looked into the Trade Adjustment Assistance Program for Companies? It works. Jim Munn decided to head up NWTAAC for the next 22 years.

In the Workers program, TAA is provided at the state and local levels but overseen by the US Department of Labor. The reemployment services provided include counseling, resume-writing, job-search and referral assistance, travel costs for job searches, relocation allowance, training, income support while the worker is in training and a health coverage tax credit. Although the actual amount paid can be much less, the training itself is up to $22,500 per person, almost the amount given to each company. The rationale is that if an employee loses a job in trade impacted industry, the jobs in the industry are fewer and, therefore, the worker will need to be trained to do something else.

One question, however, is why the Unions do not want the TAA and simply want to oppose the trade agreements? One reason could be that TAA is after the workers have lost their jobs and the training may be for jobs that do not exist.

In contrast to TAA for workers, TAAF is provided by the Commerce Department to help companies adjust to import competition before there is a massive lay-off or closure. Yet the program does not interfere in the market or restrict imports in any way.

Total cost to the US Taxpayer for this nationwide program is $16 million dollars—truthfully peanuts in the Federal budget. Moreover, the Federal government saves money because if the company is saved, the jobs are saved and there are fewer workers to retrain and the saved company and workers end up paying taxes at all levels of government rather than being a drain on the Treasury.

The success of TAA for Firms is based on the fact that it focuses on the U.S. manufacturers, service companies and agricultural producing firms individually. The recovery strategy is custom-made for each firm. Once this strategy is approved by the Commerce Department, experts are hired to implement the strategy. The only interaction the program has with the imports is to verify that imports are “contributing importantly” to the sales and employment decline of the U.S. company.

Moreover, in contrast to other economic assistance programs, TAA for Firms is a long term assistance program, which monitors the companies and makes sure that the company succeeds in completing its trade adjustment assistance program that it has agreed to do. TAAF is focused on helping small and medium size enterprises as the support provided to the companies is only $75,000, which must be matched by the companies.

Although at first glance, free market advocates would not support this program, TAA for Firms works. We have published a cost/benefit analysis, which shows that nearly 80 percent of the firms it has assisted since 1984 are still in business. That is eight out of ten companies saved.

In the recent annual Commerce report on TAAF, which is posted on my blog, it is reported that all US companies that joined the program in 2011 were alive in 2013. If the company can be saved then most of the jobs at that company can be saved. In fact, the attached chart, shows that after entering the program, jobs have increased at the companies. TAAF Change in Employment 2009-13

One reason that TAAF may succeed so well is that small and medium enterprise often have a knowledge gap. Although the companies may hire consultants, many enterprises do not undertake the projects that change the essential economic circumstances of the business, such as lean manufacturing, quality system certification, new product development, or strategic marketing overhaul.

Most managers are not looking for solutions until there is a problem. For a small and medium enterprise, trade impact is one of those problems that require a solution. That solution will in nearly all cases entail outside expertise.

In a sense, TAAF is “retraining the company” so it never has to lose jobs, rather than waiting for the layoffs and retraining the individuals. This works because when companies lose out to trade, it’s like a tsunami hits them. Everything changes. Things the company thought they knew about their product, how to make it, and how to sell it, are no longer true. What they need is the knowledge and innovation to succeed in these new circumstances. That knowledge and innovation comes from the Center Staff and outside expertise – consultants and contractors. For each company, the Staff of the Trade Adjustment Assistance Center analyzes the needs of the firm, prepares a recovery strategy, facilitates the hiring of the outside consultant and then monitors the projects until completion. If the companies get to the right place in terms of product and market, they no longer have to lose out to imports. Instead they grow.

Trade Adjustment Assistance for Firms (TAAF) specifically targets these circumstances. TAAF is based on the recognition that trade impact leads to a knowledge gap in individual firms that is cured by innovation implemented through outside expertise.

TAAF offers qualified trade impacted firms a matching fund for outside expertise. It is a substantial fund, available over a long term, and highly flexible to meet the unique requirements of diverse firms. The cost of outside expertise would normally come as an exceptional operating expense, in other words, it would come from profit. But for a trade impacted small and medium enterprise that may be losing sales under severe price competition, profit is often in short supply.

TAAF offers access to the critical resource, outside expertise, at a time when the firm needs it the most and would be least prepared to acquire it. The exceptional results of the TAAF program all derive from this connection: trade disruption equals knowledge gap; knowledge gap overcome by innovation; innovation implemented through outside expertise, outside expertise enabled by TAAF. To learn more about the TAAF program, please see the website of NWTAAC, http://www.nwtaac.org.

TAA for workers/employees looks for the businesses that are laying off people and gets those people into a service stream. The idea is that imports increased, some people lost jobs, so retrain those people or get them into some other job situation.

In the alternative, TAAF looks for those businesses that are beginning to lose out in a trade impacted market and then works with those businesses to make them stronger so that they do not have to lay off people anymore, and, as happens in most cases, actually add jobs in time.

In talking with Republicans, although thinking that TAA for workers is simply another entitlement, when the TAAF program is described, they are much more interested.

But that brings us to the present problem. We have two TAA programs that are completely separate. One is the $1 billion program to retrain workers with applications made to the Department of Labor, and the other program is the TAAF program with applications made to Commerce Department. There is little interaction between the two programs and little is done by Commerce and Labor to facilitate such communication.

In the TAA for Workers program, because the companies have the data needed to approve the application, the Labor Department tells the companies that they need to provide data in a relatively short time to the Labor Department under threat of subpoena. Similar data is provided to the Commerce Department in the TAAF program, but the company is given weeks to submit the data.

To move the Trade Agreements forward, TAA for workers and TAA for firms need to be reworked and readjusted to make sure that the programs accomplish the objective of saving the jobs and the companies that are hurt by trade liberalization. There needs to be more coordination between the two programs.

One way to adjust the programs is put the TAA for Companies program first and give it more funding so it can help larger companies, such as Steel Companies, where more jobs are located. TAA for Companies could be used to create a program where the best of technologies and advisory services could be brought to bear to help US companies challenged by globalization and trade liberalization. The Worker program then comes afterwards, after the jobs have been lost. Data that is needed for the Worker program can be supplied as part of the Company program.

One interesting point is that when the Korean government examined the US Trade Adjustment Assistance programs, that government decided not to have a workers program, only a company program, to save the jobs before they are lost.

Legislators may ask where should the money to fund these programs come from? Every year the US government collects more than $1 billion in antidumping and countervailing duties. Although the WTO has determined that the antidumping and countervailing duties cannot be given to Petitioning companies that have filed for antidumping and countervailing duties, those duties could be used to help all companies and workers hurt by imports. The WTO allows countries to provide money to companies to adjust to import competition.

Congress needs to create a 21st Trade Adjustment Assistance Program so that support for the new trade agreements can be generated in the broad population. As indicated below, the TPP alone is predicted to increase economic activity by $1 trillion. With such a huge benefit, trade agreements will eventually go through and the question now is how can the US government help workers and companies adjust to the new competitive marketplace?

WHY MARKET ECONOMY IN ANTIDUMPING CASES AGAINST CHINA IS SO IMPORTANT FOR US IMPORTERS, US END USER PRODUCERS AND CHINESE COMPANIES

As stated in numerous past newsletters, market economy for China is important in antidumping cases because the Commerce Department has substantial discretion to pick surrogate values. As mentioned many times before, in contrast to Japan, Korea, Indonesia, India, Iran and almost every other country in the World, because China is not considered a market economy country in antidumping cases Commerce refuses to look at actual prices and costs in China to determine dumping. Instead Commerce takes consumption factors from the Chinese producer for all inputs used to produce the product in question, including raw materials, energy, and labor, and then goes to a Third Country to get values often from Import Statistics in third surrogate countries to value those consumption factors.  Commerce then constructs a “cost” for the Chinese company, which often has no relationship to the actual reality in China.

In the past Commerce looked for surrogate values in only one country, India, but now Commerce looks at numerous countries, including Indonesia, Thailand, Philippines, Bulgaria, Columbia, and Ukraine to name a few and uses import values in those countries to consctruct the cost.  Those import values and the surrogate country itself can change from annual review investigation to annual review investigation.

Thus, it is impossible for the Chinese company to know whether it is dumping because it cannot know which surrogate country and which surrogate value that Commerce will pick to value the consumption factors.  Since it is impossible for the Chinese company to know whether it is dumping, the US importer cannot know whether the Chinese company is dumping.

This is very important because as of February 2014, there were 121 Antidumping and Countervailing Duty orders. 75 of those orders are for raw material products, such as metals, chemicals and steel, which go into downstream US production.

This point was recently reinforced by a Court of Appeals for the Federal Circuit (“CAFC”) decision in the Garlic from China antidumping case. On September 10, 2014, in the attached Qingdao Sea-Line Trade Co., Ltd. v. United States, in affirming the Commerce Department’s determination in the Garlic case, CAFC OPINION GARLIC WHY MARKET ECONOMY SO IMPORTANT FROM CHINA, the CAFC stated:

“In an administrative review of a non-market economy, Commerce is required to calculate surrogate values for the subject merchandise using the “best available information.” 19 U.S.C. § 1677b(c)(1). Commerce has broad discretion to determine what constitutes the best available information, as this term is not defined by statute. Commerce generally selects, to the extent practicable, surrogate values that are publicly available, are product specific, reflect a broad market average, and are contemporaneous . . .

We also hold that Commerce may change its conclusions from one review to the next based on new information and arguments, as long as it does not act arbitrarily and it articulates a reasonable basis for the change. Indeed, the Trade Court has recognized that each administrative review is a separate exercise of Commerce’s authority that allows for different conclusions based on different facts in the record.”

Emphasis added.

Thus, the Commerce Department has broad discretion to determine surrogate countries and values and their choices can change from annual review investigation to annual review investigation, exposing US importers to millions of dollars in retroactive liability based on a process, which is inherently arbitrary, because Commerce does not look at actual prices and costs in China. Not only is there a problem with retroactive liability for US importers, US end user companies are often blocked from using the competitive Chinese raw material input, which, in turn, exposes the US downstream producers, such as foundries, automobile and chemical producers, to competition from Chinese companies and foreign companies that do have access to the lower cost raw materials.

Just like a toothpaste tube, when you squeeze to help one producer, you often hurt the downstream US producer. In other words, the US antidumping and countervailing duty laws, rob Peter to pay Paul.

IMPORT ALLIANCE FOR AMERICA

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

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

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

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

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

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

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

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

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

TRADE

SOLAR CASES—POSSIBLE SETTLEMENT??—CORRECTION

POSSIBLE SCOPE EXPANSION TO INCLUDE PANELS PRODUCED IN CHINA AND TAIWAN FROM THIRD COUNTRY SOLAR CELLS

On June 3, 2014, Commerce issued its preliminary countervailing duty determination against China in the Solar Products case. The fact sheet and preliminary Federal Register notice have been posted on my blog. The Countervailing Duty Rates range from 18.56% for Trina to 35.21% for Wuxi Suntech and all other Chinese companies getting 26.89%.

On July 25th, the Commerce Department announced its preliminary antidumping determination in the Chinese solar products case establishing 47.27% combined rates (20.38% Antidumping, 26.89% Countervailing Duty) wiping out billions of dollars in imports of Chinese solar products into the United States.

Posted on my blog are the Commerce Department’s Factsheet, Federal Register notice, Issues and Decision memo from the Antidumping Preliminary Determination along with Commerce instructions to Customs in the Solar Products Antidumping and Countervailing Duty cases, which will help importers understand what products are covered by this case. Also attached is the ITC scheduling notice for its final injury investigation in the Solar Products case. The ITC hearing is scheduled for December 8, 2014.

On August 15th, after an extension, the Chinese government filed a letter at Commerce, which is posted on my blog, expressing an interest in a suspension agreement, but no proposed formal agreement has been filed with the Department.

On the possibility of a suspension agreement in the New Solar Products case or a comprehensive agreement settling all the cases, however, there are indications of ongoing negotiations between the US and Chinese governments.  After being corrected, I checked the law again and the Commerce Department does not need consent from Solar World to go forward with a Suspension Agreement.  But they do need to consult with Solar World. There is no indication that Solar World has been consulted. Commerce is also required to issue a Federal Register notice requesting comments on an Agreement, but nothing so far.

Very recently, however, there have been indications that negotiations are ongoing between the US and Chinese governments in the Solar cases. The talks are confidential and Commerce has refused to even say whether it received a proposal from China for a suspension agreement.

But sources have reported that the two sides have had several meetings since August, when China said it was interested in negotiating a settlement in a public filing. This source said the frequency of these meetings provides at least some indication that there may be movement to finally resolve the solar trade cases.

But there is little time left to conclude an Agreement so the Solar Products case in all probability will go to final determination. Antidumping and countervailing duty orders will probably be issued and could be in place for 5 to 30 years. Chinese companies and US importers will simply then try and get around the situation by setting up production in third countries.

As a result of the Solar cases and the corresponding Polysilicon antidumping and countervailing duty case brought by the Chinese government against the United States, Washington State officials have told me that REC Silicon, which has the largest polysilicon production facility here in Moses Lake, Washington, is about to set up a joint venture in China to produce polysilicon in that country.

Meanwhile, the case moves on and expands.

In the attached October 3, 2014 memo, DOC MEMO, on its own motion Commerce has proposed to expand the scope of the Solar Products case to cover all panels produced in Taiwan and China from third country solar cells. As Commerce states in the October 3, 2014 memo, which will be posted on my blog:

“Interested parties have submitted comments on the scopes of the above-referenced antidumping duty (AD) and countervailing duty (CVD) investigations, including certain concerns about the scope’s administrability and enforcement. In response, the Department is considering the possibility of the scope clarification described below and is providing interested parties with an opportunity to submit comments. Currently, the scopes of the AD and CVD investigations of certain crystalline silicon photovoltaic products from the People’s Republic of China (PRC) and the scope of the AD investigation of certain crystalline silicon photovoltaic products from Taiwan contain the following language:

“For purposes of this investigation, subject merchandise includes modules, laminates and/or panels assembled in the subject country consisting of crystalline silicon photovoltaic cells that are completed or partially manufactured within a customs territory other than that subject country, using ingots that are manufactured in the subject country, wafers that are manufactured in the subject country, or cells where the manufacturing process begins in the subject country and is completed in a non-subject country.”

Specifically, we are considering a scope clarification that would make the following points:

For the PRC investigations, subject merchandise includes all modules, laminates and/or panels assembled in the PRC that contain crystalline silicon photovoltaic cells produced in a customs territory other than the PRC.

For the Taiwan investigation, subject merchandise includes all modules, laminates and/or panels assembled in Taiwan consisting of crystalline silicon photovoltaic cells produced in Taiwan or a customs territory other than Taiwan. In addition, subject merchandise will include modules, laminates, and panels assembled in a third- country, other than the PRC, consisting of crystalline silicon photovoltaic cells produced in Taiwan.”

Today October 16, 2014, on behalf of two importers that import solar panels with third country solar cells in it, we filed a brief to argue that a change this late in the Solar Products investigation expanding the products subject to investigation violates due process because of the lack of notice to US importers and Chinese exporter and producers.  The problem with changing the scope this late in the antidumping and countervailing investigation is that Commerce Department’s record is now closed and those Chinese companies that export solar panels with third country solar cells in them along with the US companies that import those products have no opportunity to prove that the Chinese companies are separate and independent from the Chinese goverment.  The Chinese companies, therefore, will automatically get an antidumping rate of 167%.

Moveover, the entire antidumping and countervailing duty proceeding at Commerce as well as the injury investigation at the US International Trade Commission (“ITC”) are based on the presmise that the products covered by this investigation are solely those solar panels that have solar cells wholly or partially produced in the subject countries, Taiwan or China.  If Commerce accepts the proposal, that will no longer the case.  The Solar Products cases will cover solar panels with third country solar cells in them when there is no specific determination at the Commerce Department that those solar panels with third country solar cells, in fact, were dumped or that the Chinese  companies producing those panels received subsidies and no determination at the ITC that the solar panels with third country solar cells in them caused injury to the US industy.

One reason that Commerce may have decided to expand the scope is because the AD and CVD orders will be difficult to administer and enforce. It will be difficult for Customs officials at the border to determine where the components of a solar cell in a particular panel from China or Taiwan originated.  But that is a problem with the scope in Solar World’s initial petition that it filed in this case.  Substantially changing the game at this stage in the proceedings raises enormous due process questions in this proceeding.

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

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

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

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

To summarize, on January 9, 2014, the Bipartisan Congressional Trade Priorities Act of 2014, which is posted on this blog in the February post was introduced into Congress. The TPA bill gives the Administration, USTR and the President, Trade Promotion Authority or Fast Track Authority so that if and when USTR negotiates a trade deal in the TPP or the Trans-Atlantic negotiations, the Agreement will get an up or down vote in the US Congress with no amendments.

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

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

On April 9, 2014, the new Senate Finance Committee Chairman Senator Ron Wyden announced at a speech to the American Apparel & Footwear Association Conference that he was introducing a new TPA bill, what Senator Wyden calls Smart Track. But to date no details have been given about exactly what Smart Track will mean, other than more oversight by Congress and input by the Public in the trade negotiations.

On July 17th, all Republican members of the House Ways and Means Committee sent a letter to USTR Froman, which is posted on my blog, urging the Administration to build support for Trade Promotion Authority (TPA) and directing the Administration not to complete the Trans-Pacific Partnership (TPP) before TPA is enacted into law.

Recently, former USTR Ron Kirk in an opinion piece urged the negotiators to conclude an agreement without approval of the TPA. In discussing the situation with senior Republican aides in the US Congress, it was made clear that without TPA no TPP can be concluded. When asked about the Kirk statement, the response of one Republican aide recently was “I hope we are over that point.”

Now the story continues . . . .

On September 5th, it was reported that a coalition of unions and advocacy groups called on U.S. Trade Representative Michael Froman to make sure that public health programs are immune to challenges from powerful pharmaceutical firms under U.S. trade deals. The AFL-CIO, Center on Budget and Policy Priorities, AARP and other groups in a letter to Froman, said that if an investor-state dispute settlement mechanism — or ISDS — is included in the Trans-Pacific Partnership and the Transatlantic Trade and Investment Partnership, it must contain a shield for Medicare, Medicaid and other government health initiatives. The groups fear that pharmaceutical companies could use the ISDS system to challenge regulations that state legislatures, Congress or administrative agencies use to manage drug costs in public programs.

On September 8th, it was reported that pork producers in seven countries put pressure on negotiators meeting in Vietnam for a session of Trans-Pacific Partnership negotiations to resist a Japanese government proposal that would exempt certain sensitive food products from tariff cuts in the deal. Organizations representing hog farmers in the U.S., Canada, Australia, Mexico and Chile circulated an open letter to negotiators reiterating that full tariff elimination is a core principle of the TPP and that Japan’s “unacceptable” proposal to carve out pork and other food products from tariff cuts would undermine the credibility of the deal now and in the future stating:

“A broad exemption for Japan will encourage other TPP countries to withhold market access concessions, backtrack on current offers, lower the ambition on rules language and possibly unravel the entire agreement. Additionally, it would set a dangerous precedent for the expansion of the TPP when other nations are likely to demand a Japan-type deal.

“We call on each of our governments to redouble their efforts to move Japan away from this untenable position. If Japan is unwilling to open its markets fully to our products, it should exit the negotiations so that the other nations can expeditiously conclude the negotiations.”

On September 10th, it was reported that the latest session of the TPP talks in Hanoi had wrapped up with officials reporting progress on the agreement’s chapters covering intellectual property, state-owned enterprises and labor as the TPP negotiators work to deliver a substantial outcome in time for a closely watched November 10-11 APEC summit in Beijing. Assistant USTR Barbara Weisel stated:

“We have committed to a focused work plan, which will allow us to boost momentum and make continued progress. All countries involved want to reach a conclusion to unlock the enormous opportunity TPP represents.”

Canadian and Vietnamese government officials issued similar statements.

Scheduling is significant as the 12 TPP nations are quickly approaching the November 10-11 summit of the Asia-Pacific Economic Cooperation in Beijing, which President Barack Obama and others have indicated as a deadline for the partners to conclude the talks or at the very least announce a significant breakthrough on the major differences.

On September 29th, House Democratic Whip Steny Hoyer (Md.) stated that he did not expect Congress to hold debate in the upcoming post-election lame-duck session on whether to give the White House the authority to expedite international trade pacts. At an appearance at the National Press Club, Hoyer stated that he did not see enough support to bring trade promotion authority, or TPA, to the House floor.

Although some House Republicans had expressed interest in trying to move TPA during the lame duck session, when the political fallout from opponents would be less, Hoyer stated:

“I don’t think right now there is the consensus, in either party, to bring that forward. I doubt seriously, as I said, that we’re going consider trade legislation.”

On September 25, 2014, it was reported that top Japanese and US trade officials had closed a two day meeting in Washington DC without resolving any key differences regarding agriculture or automobiles in the TPP Talks. A meeting between U.S. Trade Representative Michael Froman and Japanese TPP czar Akira Amari resulted only in a brief statement from the U.S. side saying that the nations’ key differences still remain.

The USTR stated, that “While there were constructive working level discussions over the weekend, we were unable to make further progress on the key outstanding issues.” The failure of Froman and Amari to bridge the considerable gaps on food and automotive trade remains a significant barrier to the likelihood of a significant outcome in the broader 12-nation TPP talks in time for an Asia-Pacific summit in November 10-11 in Beijing, China.

On October 1, 2104, the House of Representatives Ways and Means Committee circulated the attached e-mail, WAYS AND MEANS WASH POST, with an editorial from the Washington Post on the Trans Pacific Partnership and the need to reinvigorate the process. The House Ways and Means e-mail states:

“Momentum for the Trans-Pacific Partnership Needs to be Revived

By The Editorial Board

The Trans-Pacific Partnership is a proposed free-trade agreement that will knit the United States and 11 nations of South America, North America and Asia more closely together, while providing a geopolitical counterweight to a rising China. The pact would be especially valuable because Japan is willing to join, which would require a long-overdue opening and restructuring of its protected but lackluster economy. Indeed, without Japan, the world’s third-largest economy, the TPP loses much of its strategic significance.

So it was disappointing to learn that a Sept. 24 meeting between American and Japanese trade negotiators in Washington broke up after only an hour over the same old issue, Japanese resistance to U.S. farm exports that has plagued the two nations’ dealings for decades. The Japanese departed without touching a sandwich buffet that had been laid out in anticipation of an extended working session, according to the Wall Street Journal.

This is only the latest troubling development for the centerpiece of what was once meant to be President Obama’s foreign policy “pivot” to Asia.  As 2014 began, Japanese Prime Minister Shinzo Abe was promising to join the U.S.-led free-trade agreement as a spur to his own structural economic reforms. A bipartisan, bicameral group of senior U.S. lawmakers had agreed on a plan for “fast track” legislative authority to expedite a congressional vote on the TPP, once the 12 would-be members hammered out a final deal. Bucking resistance from trade skeptics in his own party, Mr. Obama had offered a friendly reference to that proposal in his State of the Union address on Jan. 28.

But Mr. Obama’s call was received coolly by Senate Majority Leader Harry Reid (D-Nev.) and by key Democratic constituencies such as organized labor. Foreign crises in the Middle East and Ukraine occupied the White House and Congress. Two champions of the bipartisan trade promotion measure, Sen. Max Baucus (D-Mont.) and Rep. Dave Camp (R-Mich.), retired or planned to retire from Congress.

For all of Mr. Abe’s talk of bold steps and confronting special interests in Japan, his negotiators have not yet backed up the prime minister’s talk with concrete proposals, even though the prime minister has said repeatedly that opening agricultural markets is in Japan’s interest. The upshot is that momentum behind the TPP seems to be flagging and the administration’s goal of a tentative agreement by the end of 2014 is looking less feasible.

Vice President Biden tried to patch things up with Mr. Abe in a meeting on Friday, which produced a boilerplate pledge to seek an agreement. It will take more than that to revive the momentum for the TPP and close a deal. Back home, Mr. Abe needs to keep the pressure on special interests. Congress could reciprocate by moving ahead promptly with fast-track authority during the post-election lame-duck period — which will take political courage on its part, too.”

On October 2, 2014, it was reported that the Australian Government has agreed to host a meeting of the TPP trade ministers at the end of October to deal with the outstanding issues regarding intellectual property, agricultural market access, state-owned enterprises and other areas as negotiators race to close major parts of the pact by year’s end. The three day meeting will start in Sydney being Oct. 25, with the hope that the 12 TPP partners can seal the “basic elements of the agreement” before the end of the year.

But the differences with Japan and the lack of Trade Promotion Authority are two big issues that need to be addressed by the US Government. Without these two issues being resolved the chance of any big breakthroughs is small. These two problems would appear to prevent a final deal at the November APEC meeting, which has been an objective of the Obama Administration.

TTIP—FREE TRADE AGREEEMENT WITH EU

Meanwhile, trade negotiators for the US and the European Union announced on Friday, October 3rd that the seventh round of Transatlantic Trade and Investment Partnership had wrapped up with reports of steady progress on chapters covering trade in services as well as regulations covering automobiles, chemicals and food safety. Assistant U.S. Trade Representative Dan Mullaney, the lead U.S. TTIP negotiator, stated:

“As this painstaking work of building a foundation for an agreement is completed, we will need to make a high-level push to achieve the comprehensive and ambitious results that we are now working to support. That will require a shared commitment at the highest levels on both sides of the Atlantic to move forward quickly.”

INDIA STILL KILLS WTO TRADE FACILITATION AGREEMENT NEGOTIATED IN BALI

On July 31st, the WTO announced that the Trade Facilitation Agreement negotiated in Bali would not be implemented on schedule because of the substantial opposition from developing nations led by India as a result of food security initiatives.

On September 22, 2014, Director General Roberto Azevedo of the WTO warned that a deadlock on the multilateral body’s implementation of a modest trade-facilitation agreement could impose a “freezing effect” on the WTO’s work in other areas. The Director General stated:

“Many areas of our work may suffer a freezing effect, including the areas of greatest interest to developing countries, such as agriculture. All negotiations mandated in Bali, such as the one to find a permanent solution for the issue of public stockholding for food security purposes, may never even happen if members fail to implement each and every part of the Bali Package, including the trade facilitation agreement.”

Azevedo restated what he has said in the past that India and the developing countries’ concerns on food security have been addressed in the Bali package, which extended a “safe harbor” period prohibiting challenges against the controversial programs while committing to hold talks to find a permanent fix.

Azevedo stated:

“Failing to agree on new rules for twenty years is a very disturbing record. Considerably graver than that is not being able to implement what has been finally agreed only a few months earlier. The question that WTO members are trying to answer is not whether members can ensure their food security but rather under which commonly agreed disciplines they can implement policies to achieve this goal without further distorting trade or aggravating the food insecurity of third countries.”

On September 30th, however, in his first meeting with President Obama, Indian Prime Minister Narendra Modi on Tuesday reaffirmed his government’s position in the ongoing fight to implement a World Trade Organization trade facilitation pact, linking his support for the deal to action on food security issues. Modi made clear that India is not backing down from the push to shield its food security programs from legal challenges, which led the WTO to miss the July 31 deadline to implement the Trade Facilitation Agreement.

After the meeting with President Obama, Modi tweeted that “We had an open discussion on WTO issue. We support trade facilitation, but a solution that takes care of our food security must be found.” Speaking to reporters through a translator alongside Obama, Modi also said he believed it would be possible to resolve the impasse “soon.”

On September 29th, the WTO cited little progress following a Sept (PCTF) meeting, nearly two months after the advance the trade facilitation plan over concerns related to India’s food safety demands.

On October 1st, at the WTO’s 2014 public forum, United Nations Secretary General Ban Ki-moon urged the World Trade Organization to overcome its internal fights and reach a deal on new global trade rules, including the Trade Facilitation Agreement, warning that the rise of regional trade pacts could undermine the WTO and leave developing nations way behind. Secretary General Ban said that the WTO’s mission to eliminate trade barriers is a key driver of the UN’s own initiatives to promote global development. He called for a renewed commitment to the long-stalled Doha round of trade negotiations. Ban said:

“Trade can — and should — benefit everyone. That is why the international community needs to avoid protectionism. We need an open, fair, rules-based and development-oriented international trading regime in the spirit of the Doha Development Round.”

WTO Director-General Roberto Azevedo also spoke at the forum:

“Trade has become a matter of headlines and high politics once again.  Now, more than ever, our work here has the potential to touch the lives of almost everyone on this planet.”

TIRES FROM CHINA ANTIDUMPING AND COUNTERVAILING DUTY CASE

Led by Senator Kay Hagan of North Carolina, 31 Democratic US Senators wrote the attached letter, 31 DEMOCRATIC SENATORS BACK TIRES CASE, to Secretary Penny Pritzker of the Commerce Department in support of the Tires case from China. The 31 Senators stated:

“We are writing in strong support of the Department’s decision to initiate antidumping and countervailing duty investigations of passenger vehicle and light truck tires from China.

As you well know, China has targeted the passenger vehicle and light truck tire sector for development and there are several hundred tire manufacturing facilities now operating in that country. In 2009, the United Steelworkers (USW) filed a Section 421 petition seeking relief from a flood of similar tires from China that were injuring our producers and their workers. That petition was successful and the relief that was provided helped to restore market conditions. Employment stabilized and companies producing here invested billions of dollars in new plant and equipment.

Unfortunately, shortly after relief expired, imports of these tires from China once again skyrocketed. Since the Section 421 relief ended in 2012, imports from China have roughly doubled. In response, on June 3, 2014, the United Steelworkers (USW) filed petitions with the Department alleging dumping and subsidies. The Steelworkers’ petitions identified dumping margins as high as 87.99 percent and provided sufficient information for the Department to initiate an investigation on 39 separate subsidies available to tire producers in China.

Our laws need to be fairly and faithfully enforced to ensure that workers – our constituents – can be confident that, when they work hard and play by the rules, their government will stand by their side to fight foreign predatory trade practices. Thousands of workers across the country are employed in this sector, making the best tires available.

America’s laws against unfair trade are a critical underpinning of our economic policies and economic prosperity. Given the chance, American workers can out-compete anyone. But, in the face of China’s continual targeting of our manufacturing base, we need to make sure that we act quickly and enforce our laws. That is what we are asking and urge you and your Department carefully analyze the facts and act to restore fair conditions for trade.”

Senator Kay Hagan of North Carolina is in a tough reelection fight, which led to her effort to support her constituent, the Union and the Goodyear plant in Fayetteville, North Carolina.

TOUGHER TRADE LAWS??

On Wednesday October 1, 2014, in the attached press release, BROWN, Democratic U.S. Senator Sherrod Brown of Ohio announced at Byer Steel Group, a US rebar producer, in Cincinnati new legislation that would help level the playing field for American manufacturers by strengthening the ability of the U.S. to crack down on unfair foreign competition resulting from violations of trade law. Senator Brown stated:

“As American manufacturing continues its steady comeback, it is critical that we fully enforce our trade laws to ensure that American companies – like Byer Steel – can compete on a level playing field. That’s why the Leveling the Playing Field Act is so important. We must fight back against foreign companies’ efforts to weaken our trade laws and exploit loopholes. And that’s exactly what the Leveling the Playing Field Act does. I look forward to working with my colleagues in a bipartisan fashion to get this bill passed.”

ALUMINUM EXTRUSIONS

CIRCUMVENTION OF ALUMINUM EXTRUSIONS ORDER??

As a follow up to the May 8th letter by Senator Mitch McConnell reported in my last newsletter, on August 14th, Senator Orrin Hatch sent the attached letter, HATCH LETTER ALUMINUM, to Paul Piquado, Assistant Secretary for Enforcement & Compliance, at the Commerce Department, expressing his concerns of circumvention of the antidumping and countervailing duty orders on Aluminum Extrusions. In the letter, Senator Hatch stated:

“Futura Industries and its 327 employees based in Clearfield, Utah is among the U.S. companies affected by the Chinese products found to be dumped and subsidized. I understand that the Department is currently conducting two scope inquiries related to imports of 5000-series alloy aluminum extrusions in place of the 6000-series alloy aluminum extrusions to which the orders apply. I urge you to apply all applicable laws and regulations in making the Department’s scope rulings.”

On August 19th, Congressman Sessions sent a similar attached letter, SESSIONS LTR, to Assistant Secretary Paul Piquado on behalf of his constituent Texas Western Extrusions Corporation and its 700 employees expressing deep concern by recent reports of unfair trade practices from China in exporting the 5000-series alloy aluminum extrusions that once again are “threatening Texas jobs.

On September 8, 2014, it was reported that numerous members of Congress have urged the U.S. Department of Commerce to rule that the so-called “5000 series” of extrusions currently being shipped into the U.S. should be covered by the aluminum extrusions antidumping and countervailing orders.

On September 4, 2014, Assistant Secretary for Enforcement and Compliance Paul Piquado in the attached letter, ALUMINUN COMMERCE RESPONSE, to the lawmakers assured them that the agency is “committed to the robust enforcement of the trade remedy laws” to help provide U.S. firms and workers the opportunity to “compete on a level playing field.” The Assistant Secretary also stated that his office is aiming to reach a decision in its probes by Oct. 8.

STEEL WIRE ROD FROM CHINA PRELIMINARY ANTIDUMPING DETERMINATION

On September 2, 2014, in the attached factual statement,  factsheet-prc-carbon-alloy-steel-wire-rod-ad-prelim-090214, the Department of Commerce (Commerce) announced its affirmative preliminary determination in the antidumping duty (AD) investigation of imports of carbon and certain alloy steel wire rod from the People’s Republic of China (China).  Since the Chinese companies failed to respond to the Commerce Department’s questionnaire, they received a preliminary dumping margin of 110.25 percent with the separate rate steel companies receiving a preliminary dumping rate of 106.19 percent.

CAFC AFFIRMS THE IMPORTANCE OF SEPARATE RATES FOR CHINESE EXPORTERS AS OPPOSED TO PRODUCERS

On September 10, 2014, in the attached Michaels Stores, Inc. v. United States case, CAFC MICHAELS CHINESE EXPORTERS NEED TO GET THEIR OWN RATE, the Court of Appeals for the Federal Circuit (“CAFC”) restated the importance of Chinese exporters, including trading companies, getting their own antidumping rates and that the importer, in fact, confirm that the Chinese exporter has a separate rate. In the case, Michaels, a US importer, assumed that the since the Chinese producer had an antidumping rate, that rate applied to the Chinese exporter. Not true. As the CAFC stated:

“Indeed, it has been Commerce’s policy since 1991 to apply a country-wide rate to all exporters doing business in the PRC unless the exporter (not the manufacturer) establishes de jure and de facto independence from state control in an administrative review proceeding. . . . This court has endorsed this presumption on multiple occasions. . . .

Michaels has not demonstrated that Commerce’s interpretations of the regulation in practice are plainly erroneous or inconsistent with the regulation. Because a noncombination rate for the exporter was established as the PRC-wide rate of 114.90%, Michaels could not rely on its producer rates as a substitute. Were we to conclude otherwise, Michaels could circumvent its antidumping obligations by buying pencils from a state-controlled exporter at a discounted price and then use the antidumping rate associated with its non-state controlled manufacturer.”

OCTOBER ANTIDUMPING ADMINISTRATIVE REVIEWS

On October 1, 2014, Commerce published in the Federal Register the attached notice, OCT REVIEWS, regarding antidumping and countervailing duty cases for which reviews can be requested in the month of October. The specific antidumping cases against China are: Barium Carbonate, Barium Chloride, Electrolytic Manganese Dioxide, Helical Spring Lock Washers, Polyvinyl Alcohol, and Steel Wire Garment Hangers. No countervailing duty cases were listed

For those US import companies that imported Electrolytic Manganese Dioxide, Helical Spring Lock Washers, Polyvinyl Alcohol, and Steel Wire Garment Hangers and the other products listed above from China during the antidumping period October 1, 2013-September 30, 2014 or if this is the First Review Investigation, for imports imported after the Commerce Department preliminary determinations in the initial investigation, the end of this month is a very important deadline. Requests have to be filed at the Commerce Department by the Chinese suppliers, the US importers and US industry by the end of this month to participate in the administrative review.

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

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

DUELING US AND CHINA WTO APPEALS

As mentioned in the prior post, on July 14, 2014, in a decision and summary, which is posted on my blog, the WTO upheld China’s claims that certain US countervailing duty cases against China were inconsistent with the WTO Agreement. On August 22nd, China filed a notice of appeal at the WTO with regards to the remaining cases, followed by the US notice of appeal on August 27th.

Both appeals are taking issue with the initial WTO panel’s finding on the uses of all facts available (“AFA”) in countervailing duty cases against China. Commerce based its AFA determinations on the failure of the Chinese government to provide adequate information to Commerce to make a determination on certain programs of the Chinese government.

In the initial panel ruling, while the US won on China’s challenge to AFA findings, the US lost on several other issues, including the Commerce Department’s use of out of China benchmarks to measure the subsidies and the Commerce Department determination that every state-owned company, in fact, is part of the Chinese government, even if it does not function as a governmental entity. In the initial panel decision, the WTO panel determined that Commerce’s decision to automatically find that state owned enterprises (SOEs) to be part of the government and “public” bodies, which therefore constituted “government involvement” in the market, was a violation of the Countervailing Duty Agreement. The US did not appeal this decision by the WTO initial panel and, therefore, is final and a loss for the US government.

The US alleges that Chinese government made procedural errors in appealing the cases to the WTO, including the failure to specify which AFA determinations were being appealed. The initial panel ruling rejected the US argument stating, “While we have some sympathy for the United States’ position, namely that more detail could have been provided in the panel request regarding what in particular about the manner in which the United States resorted to and used facts available is allegedly inconsistent with Article 12.7 of the SCM Agreement, we are not convinced that Article 6.2 of the DSU requires this,”

During the panel proceedings, China had argued that because Commerce cannot automatically assume that State Owned Enterprises/Companies are public bodies for the purposes of Article 1.1(a)(1), it should also not automatically assume that market conditions are distorted just because a State-Owned Company is involved in the marketplace. The initial panel decision, however, did not directly address this issue raised by the Chinese government and is now being appealed by China. The initial panel stated:

“In our view, some determinations are based on the market share of government-owned/controlled firms in domestic production alone, others on adverse facts available, others on the market share of the government plus the existence of low level of imports and/or export restraints.”

China is also asking on appeal that the WTO overturn the panel’s finding affirming the Commerce Department’s methodology for determining whether a subsidy is specific to an enterprise or group of enterprises within a certain region.

NEW ANTIDUMPING AND COUNTERVAILING DUTY CASE AGAINST BOLTLESS STEEL SHELVING FROM CHINA

On August 26, 2014, Edsall Manufacturing filed a new AD and CVD case against Boltless Steel Shelving from China. The alleged Antidumping rates are 33 to 267%.

The ITC notice and the relevant pages of the petition are attached.  STEEL SHELVING SHORT PETITION ITC PRELIMINARY NOTICE

RUSSIA—US SANCTIONS AS A RESULT OF UKRAINE CRISIS

On September 3, 2014, I spoke in Vancouver Canada on the US Sanctions against Russia, which are substantial, at an event sponsored by Deloitte Tax Law and the Canadian, Eurasian and Russian Business Association (“CERBA”). Attached are copies of the powerpoint for the speech and a description of our Russian/Ukrainian/Latvian Trade Practice for US importers and exporters.  US SANCTIONS RUSSIA RUSSIAN TRADE PRACTICE

There is a great deal of confusion and uncertainty surrounding business with Russian companies. As sanctions continue to expand against Russia, any company interested in doing business with Russia must constantly check the regulations and hire legal counsel. Every single transaction with Russian entities is a potential target of the sanctions, and, therefore, any US company interested in doing business with Russia must be extremely vigilant. The US regulations mirror regulations in Canada and the EU, but there are differences.

There are two groups of US regulations. The most powerful regulations are administered by Treasury—Office of Foreign Assets Control (“OFAC”). A second group of regulations have been issued by the Commerce Department’s Bureau of Industry and Security (BIS) blocking exports of certain energy-sector technologies.

With regards to the sanctions administered by OFAC, US Presidential Executive Orders 13660, 13661, and 13662 define how U.S. Government will identify targets of sanctions (e.g., financial services, energy, metals and mining, engineering, and defense sectors and government agencies and officials).

The specific OFAC regulations regarding Ukraine are set forth in 31 CFR 589 –”Blocking”/“Asset Freezing” sanctions prohibiting transactions with specific persons and entities. Attached are the Ukraine regulations, UKRAINE RELATED SANCTIONS REGULATIONS, but they do change as the sanctions evolve.

Pursuant to the OFAC regulations, U.S. persons are prohibited from conducting transactions, dealings, or business with Specially Designated Nationals and Blocked Persons (SDNs). A US person must also block the property or interest in property of SDNs that they hold or that is located in the United States. The blocked persons list can be found at http://sdnsearch.ofac.treas.gov/. See also:   www.treasury.gov/resource-center/sanctions/programs/pages/ukraine.aspx . The list includes the Russian company, United Shipbuilding, and a number of Russian Banks, including Bank Rossiya, SMP Bank, Bank of Moscow, Gazprombank OAO, Russian Agricultural Bank, VEB, and VTB Bank.

When such SDN property is blocked, it must be reported to OFAC within 10 days, and cannot be dealt in by U.S. persons without prior authorization from OFAC.  Civil penalties are up to $250,000 or 2x transaction value, per violation (strict liability regime); criminal fine up to $1 million, and/or up to 20 years in prison.

On July 29, 2014, OFAC issued a new “Sectoral Sanctions Identification List” (the “SSI List”) that identifies specific Russian persons and entities covered by these sectoral sanctions. See www.treasury.gov/resource-center/sanctions/SDN-List/pages/ssi_list.aspx. U.S. persons are prohibited from engaging in certain transactions with persons and entities on the SSI List, but are not required to “freeze” or “block” property or interests in property of such persons and entities as if they were SDNs.

Specifically U.S. persons are prohibited from:

“transacting in, providing financing for, or otherwise dealing in new debt of longer than 90 days maturity or new equity for these persons … their property, or their interests in property. All other transactions with these persons or involving any property in which one or more of these persons has an interest are permitted, provided such transactions do not otherwise involve property or interests in property of a person blocked pursuant to Executive Orders 13660, 13661, or 13662, or any other sanctions programs implemented by the Office of Foreign Assets Control [i.e., an SDN]”

General OFAC policy restrictive measures apply automatically to any entity owned 50% or more by SDN, even if the entity is not specifically named as SDN.

Even if company is not on SDN/SSI list, a US company wishing to do a transaction with a Russian company needs to determine in writing whether the company is 50% or more owned by any SDN or controlled by an SDN. As OFAC has stated in its announcement:

“U.S. persons are advised to act with caution when considering a transaction with a non-blocked entity in which one or more blocked persons has a significant ownership interest that is less than 50 percent or which one or more blocked persons may control by means other than a majority ownership interest”

Thus companies or persons on the SSI list may become named SDNs in the future. SSI and SDN Lists are not static but evolving. Lists will likely expand and have expanded based on Russian behavior in Ukraine. Everything could change overnight. Do not rely on a dated list. Keep checking.

www.treasury.gov/resource-center/sanctions/SDN-List/pages/ssi_list.aspx

The regulations are extremely complicated and nothing is straight forward. Thus, each transaction with a Russian company must be examined closely in detail and will be very fact specific. The devil in these regs is definitely in the details.

The US and EU sanctions also are affecting the Russian economy as indicated by the fact that VTB, Russia’s second-largest bank, sold 214 billion rubles ($5.4 billion) worth of preferred shares to Russia’s finance ministry because the sanctions have made it more difficult for the Bank to borrow overseas.

Meanwhile on August 6, 2014, the Commerce Department’s Bureau of Industry and Security (BIS) issued new sanctions blocking exports of certain energy-sector technologies. Commerce will now require an export license for items used in deepwater, Arctic offshore, or shale projects to produce oil or gas in Russia. Items subject to a license denial under the rule include drilling rigs, horizontal drilling parts, drilling and completion equipment, and subsea processing equipment. Commerce issued no savings clause, which means if the items are on a freighter on the way to Russia, they have to be called back.

On September 11, 2014, the US and the European Union announced new restrictions on Russian access to capital market. The new sanctions target Russian financial, energy and defense companies and make it more difficult to make loans to the five Russian state-owned banks, by tightening debt financing restrictions by reducing the maturity period of the new debt issued by those institutions from 90 days to 30 days. The companies targeted in the new round of OFAC sanctions include OAO Gazprom, Roseneft, Lukoil OAO, pipeline operator, Transneft, and Rostec, a Russian institution dealing in industrial technology products, along with the nation’s largest financial institution, Sberbank of Russia.

OFAC also added another set of Commerce export restrictions on certain oil development technologies by broadening the scope of the items that are banned and adding Gazprom, Lukoil and three other energy firms to the list of specifically banned export destinations.

Treasury stated:

“Today’s step … will impede Russia’s ability to develop so-called frontier or unconventional oil resources, areas in which Russian firms are heavily dependent on U.S. and western technology. While these sanctions do not target or interfere with the current supply of energy from Russia or prevent Russian companies from selling oil and gas to any country, they make it difficult for Russia to develop long-term, technically challenging future projects.”

These new sanctions come close to cutting off entire sectors of the Russian economy.  In practice, U.S. financial institutions will likely treat any transaction with a listed bank as a rejection. The new measures materially restrict access to American and European debt markets for the targeted financial institutions and defense firms.  The U.S. actions now bar affected Russian institutions from the American debt markets for loans over 30 days, meaning that while they will still be able to conduct day-in, day-out business with overnight loans, it will be significantly harder to finance medium- and long-term activity.

The sanctions have already had an impact on oil projects. On September 19, 2014 ExxonMobil announced that it is stopping work on an offshore oil well in the Arctic Ocean it is jointly developing with Russian oil giant OAO Rosneft in order to comply with the escalating sanctions.

In addition to the OFAC and Commerce sanctions against Russia, on July 18, 2014 a massive arbitration award was issued by arbitral tribunal in The Hague under Permanent Court of Arbitration. The Court unanimously held that the Russian Federation breached its international obligations under the Energy Charter Treaty by destroying Yukos Oil Company and Yukos shareholders and awarded the shareholders $50 billion.

There is now a legal search for Russian Federation assets to pay off the award. Yukos lawyers will be able to enforce the arbitration award in any of the 150 countries bound by the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards.

CUSTOMS

TREK LEATHER—WHEN ARE OWNERS LIABLE FOR DUTIES OWED BY COMPANIES AS IMPORTERS OF RECORD

On September 16, 2014, in the attached United States v. Trek Leather, Inc. case, CAFC TREK LEATHER DECISION, the Court of Appeals for the Federal Circuit (“CAFC”) in an “en banc” decision made by all the judges in the CAFC held that the President of an importing company may be held personally liable for submitting false information to U.S. Customs and Border Protection.

In the decision, the entire CAFC reversed the earlier panel’s determination that only the importer of record could be liable for penalties, not the owner of the company.  Prior to the decision, importers assumed that the owner could be personally liable only if Customs and Border Protection (“CBP”) pierced the corporate veil of the import company.  In this case, however, the CAFC found the owner, Shadadpuri, himself liable for gross negligence for submitting documentation to CBP that understated the value of more than 70 imports of men’s suits in 2004, even though only the company, and not its president, was listed as the importer of record.

As the CAFC stated:

“Recognizing that a defendant is a “person,” of course, is only the first step in determining liability for a violation of either of the subparagraphs. What is critical is the defendant’s conduct. The two subparagraphs of section 1592(a)(1) proscribe certain acts and omissions. . . .

What Mr. Shadadpuri did comes within the commonsense, flexible understanding of the “introduce” language of section 1592(a)(1)(A). He “imported men’s suits through one or more of his companies.” . . . .While suits invoiced to one company were in transit, he “caused the shipments of the imported merchandise to be transferred” to Trek by “direct[ing]” the customs broker to make the transfer. . . . Himself and through his aides, he sent manufacturers’ invoices to the customs broker for the broker’s use in completing the entry filings to secure release of the merchandise from CBP custody into United States commerce. . . . By this activity, he did everything short of the final step of preparing the CBP Form 7501s and submitting them and other required papers to make formal entry. He thereby “introduced” the suits into United States commerce.

Applying the statute to Mr. Shadadpuri does not require any piercing of the corporate veil.  Rather, we hold that Mr. Shadadpuri’s own acts come within the language of subparagraph (A).  It is longstanding agency law that an agent who actually commits a tort is generally liable for the tort along with the principal, even though the agent was acting for the principal. . . . That rule applies, in particular, when a corporate officer is acting for the corporation. . . .

We see no basis for reading section 1592(a)(1)(A) to depart from the core principle, reflected in that background law, that a person who personally commits a wrongful act is not relieved of liability because the person was acting for another. . . . That is as far as we go or need to go in this case. We do not hold Mr. Shadadpuri liable because of his prominent officer or owner status in a corporation that committed a subparagraph (A) violation.  We hold him liable because he personally committed a violation of subparagraph (A).”

ACTIVATED CARBON—THE IMPORTANCE OF DEADLINES WHEN APPEALING FROM CUSTOMS LIQUIDATIONS

On September 8, 2014, the Court of International Trade in the attached Carbon Activated Corp. v. United States case, CARBON ACTIVATED CORP PROTEST FAILS, dismissed the appeal finding that the Court did not have jurisdiction because of missed deadlines. As the Court stated:

“Here, subsection (a) would have been available to Plaintiff because the correct avenue for challenges to liquidations is first to lodge a protest with Customs within 180 days of the liquidation and then to challenge any denial of that protest in this court. . . . Plaintiff filed a protest but it did so three years after the alleged erroneous liquidation. It is established that “a remedy is not inadequate simply because [a party] failed to invoke it within the time frame it prescribes.” . . .Accordingly, Plaintiff had an adequate remedy for its alleged erroneous liquidation, but it lost that remedy because its protest was untimely, not because the remedy was inadequate.

It is a tenet of customs law that the importer has a duty to monitor liquidation of entries. . . . Plaintiff concedes this point. . . Therefore Plaintiff’s claim that it “was first made aware [in June 2012] that these three entries had been erroneously liquidated as entered in April and May of 2008” is insufficient to extend the statute of limitations. . . . Plaintiff has the duty to monitor the liquidation of its entries, and a statutory remedy is in place to challenge any erroneous liquidations for a diligent importer who complies with this duty. Plaintiff’s failure to pursue that remedy in a timely manner does not fall under the rubric of “manifestly inadequate” and therefore Plaintiff cannot invoke subsection (i) jurisdiction in this case.”

FALSE CLAIMS ACT

In the attached false claims act case, PIPES FCA CASE, on September 4, 2014, in United States of America: Civil Action ex rel. Customs Fraud Investigations v. Vitaulic Company, a Federal District Court dismissed a false claims act case ruling there wasn’t enough evidence supporting allegations the pipe fittings manufacturer knowingly filed false documents to evade U.S. customs duties.

IP/PATENT AND 337 CASES

337 CASES

There have been developments at the US International Trade Commission (“ITC”) in 337 cases and patent area.

SANCTIONS AGAINST UPI SEMICONDUCTOR

On September 25, 2014, the CAFC in the attached UPI Semiconductor Corp. v. United States, UPI SEMICONDUCTORS CAFC DECISION, affirmed a decision of the US International Trade Commission to impose penalties on UPI for violation of a consent order in a 337 patent case. The CAFC stated:

“Before the court are the appeal of respondent intervenor UPI Semiconductor Corp. (“UPI”) and the companion appeal of complainant-intervenors Richtek Technology Corp. and Richtek USA, Inc. (together “Richtek”) from rulings of the International Trade Commission in an action to enforce a Consent Order, Certain DC-DC Controllers and Products Containing Same, Inv. No. 337-TA-698 (75 Fed. Reg. 446). We affirm the Commission’s ruling that UPI violated the Consent Order as to the imports known as “formerly accused products,” and affirm the modified penalty for that violation. We reverse the ruling of no violation as to the “post-Consent Order” products. The case is remanded for further proceedings in accordance with our rulings herein.”

MADE IN THE USA—FTC AND FALSE ADVERTISING PROBLEM

On October 1, 2014, the Wall Street Journal reported that the Made in US requirement has escalated because of stricter requirements by the State of California. FTC guidelines state that an unqualified “Made in USA” label can go on any goods that are “all or virtually all” made domestically in the United States, but the words “virtually all” are open to interpretation based on the specific facts of the case.

But California has stricter guidelines than the FTC requiring the entire product to be made in the US. If even one small part of a product is foreign, California state law says calling the product “Made in the USA” amounts to false advertising. This law has provoked a number of consumer/class action lawsuits filed in California against US manufacturers.

As one example, a maker of helium tanks designed to be used at children’s parties was sued because it started packing imported balloons with the equipment. In another case, a California company was sued because it produces Maglite flashlights that use imported small rubber rings and light bulbs from abroad.

The California law was passed in 1961 to shield domestic producers from competitors who might get a pricing edge by using large amounts of cheap imported parts to manufacture goods labeled “Made in USA.” The problem is that it has become increasingly difficult to avoid using at least some imported content in a US product.

SECTION 337 COMPLAINTS

NEW 337 COMPLAINT AGAINST FOOTWARE PRODUCTS FROM CHINA

Today, October 14th, Converse Inc. filed a new 337 IP case against footware products/sneakers from China for infringement of Converse’s registered and common law trademarks.  Relevant parts of the petition are attached.  LONG 337 FOOTWEAR PETITION The ITC notice of the petition is set forth below.

Docket No: 3034

Document Type: 337 Complaint

Filed By: V. James Adduci, II

Firm/Org: Adduci, Mastriani and Schaumberg

Behalf Of: Converse Inc.

Date Received: October 14, 2014

Commodity: Footwear Products

Description: Letter to Lisa R. Barton, Secretary, USITC; requesting that the Commission conduct an investigation under section 337 of the Tariff Act of 1930, as amended, regarding Certain Footwear Products . The proposed respondents are: Skechers U.S.A., Inc., Manhattan Beach, CA; Wal-Mart Stores, Inc., Bentonville, AR; A-List, Inc., d/b/a Kitson, Los Angeles, CA; Aldo Group, Canada; Brian Lichtenberg, LLC, Los Angeles, CA; Cmerit USA, Inc., d/b/a Gotta Flurt, Chino, CA; Dioniso SRL, Italy; Edamame Kids, Inc., Canada; Esquire Footwear, LLC, New York, NY; FILA U.S.A., Inc., Sparks, MD; Fortune Dynamic, Inc., City of Industry, CA; Gina Group, LLC, New York, NY; H & M Hennes & Mauritz LP, New York, NY; Highline United LLC d/b/a Ash Footwear USA, New York, NY; Hitch Enterprises Pty Ltd d/b/a Skeanie Unit 3, Australia; Iconix Brand Group, Inc., d/b/a Ed Hardy, New York, NY; Kmart Corporation, Hoffman Estates, IL; Mamiye Imports LLC d/b/a Lilly of New York, Brooklyn, NY; Nowhere Co., Ltd. d/b/a Bape, Japan; OPPO Original Corp., City of Industry, CA; Orange Clubwear, Inc., d/b/a Demonia Deviant, Westminster, CA; Ositos Shoes, Inc., d/b/a Collection’O, South El Monte,CA; PW Shoes Inc., Maspeth, NY; Ralph Lauren Corporation, New York, NY; Shenzhen Foreversun Industrial Co., Ltd (a/k/a Shenzhen Foreversun Shoes Co., Ltd), China; Shoe Shox., Seattle, Washington; Tory Burch LLC, New York, NY; Zulily, Inc., Seattle, Washington; Fujian Xinya I & E Trading Co., Ltd., China; Zhejiang Ouhai International Trade Co., Ltd., China; and Wenzhou Cereals Oils & Foodstuffs Foreign Trade Co., Ltd., China.

Status: Pending Institution

On the same day that Converse filed the section 337 case, it also filed the attached trademark complaint for damages in the Federal District Court in Brooklyn.  CONVERSE FOOTWEAR FED CT COMPLAINT

PERSONAL TRANSPORTERS FROM CHINA

On September 9, 2014, Segway filed a major 337 patent case against imports of personal transporters from a number of Chinese companies in Beijing and Shenzhen. The ITC notice is below and the relevant parts of the Petition are attached, SHORT PERSONAL TRANSPORTERS 337 Complaint. Segway is requesting a general exclusion order to exclude all personal transporters from China and other countries and also cease and desist orders to stop importers from selling infringing personal transporters in their inventory.

The proposed respondents are: PowerUnion (Beijing) Tech Co. Ltd., Beijing; UPTECH Robotics Technology Co., Ltd., Beijing; Beijing Universal Pioneering Robotics Co., Ltd., Beijing; Beijing Universal Pioneering Technology Co., Ltd., Beijing; Ninebot Inc.,(in China) Beijing; Ninebot Inc., Newark, DE; Shenzhen INMOTION Technologies Co., Ltd., Guangdong; Robstep Robot Co., Ltd., Guangdong; FreeGo High-Tech Corporation Limited, Shenzhen; Freego USA, LLC, Sibley, IA; Tech in the City, Honolulu, HI; and Roboscooters.com, Laurel Hill, NC.

Chinese companies must respond to the complaint in about 60 days, 30 days for Institution and 30 days from service of complaint. If the Chinese companies fail to respond, they can be found in default and exclusion orders against their products can be issued.

If anyone has questions about this compliant, please feel free to contact me.

Dorsey & Whitney has substantial expertise in the patent and 337 areas. Recently, we were able to win a major 337 case for a Japanese company in the Point-to Point Network Communication Devices 337 case.

PATENT AND IP CASES IN GENERAL

NEW PATENT AND TRADEMARK CASES AGAINST CHINESE AND TAIWAN COMPANIES

On September 23, 2014, BASF Corp. filed a patent infringement case against SNF Holding Company, Flopam Inc., Chemtall Inc., SNF SAS, SNF (China) Flocculant Co., Ltd. BASF

On October 6, 2014, Hewlett-Packard Co. filed a patent case against Ninestar Image Tech Ltd., Ninestar Technology, Co., Ltd. and Apex Microelectronics Co., Ltd. for infringement of HP’s patents on printer cartridges. Ninestar is located in Shenzhen and has been the target of a section 337 patent case involving similar technology. NINESTAR NEW PATENT CASE

On September 2, 2014, Cephalon, Inc. filed a patent infringement case for drugs against Nang Kuang Pharmaceutical Co., Ltd. in Taiwan and Canda NK-1, LLC. TAIWAN GENERIC DRUGS

Complaints are attached above.

CHINESE PATENT CASES

In the attached report in English and Chinese, ACTUAL ABA COMMENTS CHINESE AND ENGLISH, the American Bar Association (“ABA”) ABA antitrust, intellectual property and international law sections raised concerns on judicial interpretations from China’s highest court regarding certain patent infringement trial issues, concerns about some proposed claims rules and also other patent issues.

One concern is that under the drafted requirement, when there are two or more claims in a patent, a patent holder would be required to specify the infringed claim in the complaint, according to the comments. But if the owner doesn’t point out which claim is infringed, the court would presume all of the independent claims were alleged to be infringed. The ABA sections, however, said that such a requirement might “deter meritorious claims” particularly because the infringement details might be controlled by the alleged infringer.

Finally, the ABA sections are also concerned about the Chinese draft that appeared to impose compulsory licensing obligations when having an accused infringer stop practicing the relevant patents would either harm the public interest or cause a “serious interest imbalance between the parties.”

Recently US companies have argued that China has made it more difficult for US owners of pharmaceutical patents to provide supplemental information to fend of certain legal challenges. U.S. companies are now reporting an increasing number of cases where they are being barred from providing such additional information if their drug patents are challenged for a different reason.

During the December 2013 JCCT meeting, the U.S. government complained to the Chinese government it was holding up or invalidating pharmaceutical patents by charging that the application contained insufficient information to meet the requirements of Article 26.3 of Chinese patent law, without allowing brand-name companies to supplement information after the initial filing.  According to Commerce, at the JCCT, the Chinese government pledged that patent applicants could supplement their initial data submissions, and it has made progress toward implementing that commitment.  Recently, however, it appears that the Chinese government may be back sliding on that commitment.

PRODUCTS LIABILITY/FDA

CHINA RESTRICTIONS ON US FOOD PRODUCTS

On Aug. 22, 2014 – Agriculture Secretary Tom Vilsack announced that California citrus farmers will be able to resume exports to China this season. A series of scientific exchanges between the USDA’s Animal and Plant Health Inspection Service (APHIS) and China’s General Administration of Quality Supervision, Inspection, and Quarantine (AQSIQ) resulted in an agreement for California citrus to again be exported to China. APHIS and USDA’s Foreign Agricultural Service worked closely with the U.S. citrus industry to ensure the successful outcome.

In April 2013, California-origin citrus was suspended from entering the Chinese market due to interceptions of brown rot (Phytophthora syringae), a soil fungus that affects stored fruit. Over the next year, USDA worked with China to address China’s plant health concerns and reopen the market for California citrus exports.

In a statement following the USDA announcement, Western Growers Association Executive Vice President Matt McInerney said China was the third-largest market for California citrus exports before the ban. The USDA release said California citrus exports have a total annual value of $30 million.

On September 15th, it was announced that USDA and USTR officials were in Beijing to discuss the implementation of the Trade Facilitation Agreement (TFA) and in particular a meeting of the sanitary and phytosanitary (SPS) working group of the U.S.-China Joint Commission on Commerce Trade (JCCT), where the agenda will likely touch upon issues like China’s ban on U.S. beef and its regulatory process for approving biotechnology traits. China closed its beef market to U.S. exports due to a 2003 outbreak of bovine spongiform encelopathy (BSE) – or “mad cow” disease — and has since set a number of preconditions for opening it, including a U.S. livestock traceability system.

Early in September, nineteen 19 Senators urged USTR Michael Froman to act on the Chinese government’s rejection of U.S. shipments of dried distillers grains that contained traces of an unapproved biotech trait. In the attached letter, SENATE LETTER DISTILLER GRAINS, the 19 Senators stated:

“We write you to convey our strong concerns over recent action taken by the Chinese government to reject U.S. export shipments of dried distillers grains (DDGs) that contain traces of a U.S. approved trait, which has been under regulatory consideration by the Chinese government. We urge you to work with China to restore the flow of trade as quickly as possible and to develop a more consistent set of rules governing the trade of new crop technologies between the two countries.

As you know, China is the top destination for U.S. exports of DDGs, totaling four million tons valued at $1.6 billion in 2013. Every link in the DDGs supply chain-including ethanol producers, corn farmers, and shippers-have already incurred significant economic damages due to these actions by the Chinese government.

The trade disruption in DDGs is yet another example of the regulatory challenges industry has faced with China since it began blocking U.S. corn shipments in November 2013. We encourage you to work closely with China to promote a science-driven review process for agricultural biotechnology that issues determinations without undue delay, consistent with WTO member country obligations.

As biotech products are a key component of U.S. agricultural trade with China, including exports of DOGs, achieving greater cooperation between the two countries on trade issues involving new crop technologies is essential to maintaining our position as the leading agricultural exporter worldwide.

We look forward to continuing to work with you to strengthen our trade relationship with China in agriculture.”

CHINESE INVESTMENT OPPORTUNITIES

US INVESTMENT IN CHINA

Dorsey recently published the attached short brochure,  DORSEY CHINA INVESTMENT BROCHURE, on issues that foreign companies and individuals face when investing in China.

As stated in the brochure,

“Despite the global financial crisis, foreign direct investment into China continues to grow. With China recently overtaking Japan as the world’s 2nd largest economy, foreign investment into China looks set to continue its rise. Nonetheless, foreign investors need to be aware of a number of crucial factors.”

The brochure then goes into details about the following area: Restrictions on Foreign Ownership, Business Vehicles, Approval & Registration, Capital Requirements, Shareholder & Director Nationality, Management Structure, Directors’ Liability, Parent Company Liability, Work/Residency Permits, Thin Capitalization Rules, Competition, Restrictions in the Financial Services Sector, Governing Law of Documents.

ANTITRUST– VITAMIN C, MAGNESITE AND AU OPTRONICS

There have been major developments in the antitrust area both in the United States and more importantly in China.

TAIWAN LCDS CASE

On September 5, 2014, the US Department of Justice and the Federal Trade Commission filed the attached brief, AU OPTRONICS BRIEF, in the 7th Circuit Court of Appeals in the Motorola Mobility LLC v. AU Optronics case, the Taiwan LCDs case. In that case, the Seventh Circuit vacated its March 2014 decision that Motorola’s case did not show direct effect on US Commerce sufficient to satisfy the Foreign Trade Improvements Act (“FTAIA”).

In the case Motorola sought damages for antitrust overcharges based on allegedly price fixed LCD panels that were manufactured and purchased overseas, but later incorporated into goods sold in the United States. In their brief, the DOJ and the FTC argued that the 7th Circuit should hold that an overseas conspiracy to fix prices on the component of a finished product that is sold in the US can yield liability under the FTAIA. The DOJ and the FTC argue in their brief:

“The FTAIA makes clear that the Sherman Act does not apply to conduct that adversely affects only foreign markets, but it also ensures that purchasers in the United States remain fully protected by the federal antitrust laws. This Court should not erode this protection.

Conduct involving import commerce is excluded from FTAIA’s coverage, and the Sherman Act thus applies fully to such conduct. This import-commerce exclusion is not limited to circumstances in which the defendants are importers or specifically “target” U.S. import commerce. A price-fixing conspiracy can involve import commerce even if the price-fixed product is physically imported by a third party or if the defendants did not focus on U.S. imports. A narrower interpretation of the exclusion would undermine the FTAIA’s purpose to protect purchasers in the United States.

The LCD price-fixing conspiracy involved import commerce because defendants fixed the price of LCD panels sold for delivery to the United States. Yet, this does not, by itself, entitle Motorola to recover damages for overcharges on all its panel purchases. But it does allow the government to bring criminal and civil enforcement actions. Unlike civil damage claims, in which courts should differentiate among claims based on the underlying transactions, government enforcement actions seek to prosecute or enjoin violations of law, not to obtain damages compensating for particular injuries.

The price-fixing conspiracy also affected import and domestic commerce in cellphones by raising their price. This effect is not only substantial and reasonably foreseeable, but also direct. The natural and probable consequence of increasing the price of a significant component like LCD panels is to increase the price of cellphones that incorporate those panels. A contrary holding risks constraining the government’s ability to prosecute offshore component price fixing that threatens massive harm to U.S. commerce and consumers.

While the government may prosecute conduct that has the requisite effect under Section 6a(1), Section 6a(2) requires that the effect “give rise to [plaintiff’s] claim,” and thus limits what injuries are redressable by damages claims. The injury to Motorola’s foreign affiliates is not caused by the inflated prices of cellphones sold in import or domestic commerce, and therefore the affiliates’ claims do not arise from that effect on U.S. commerce. The first purchasers of cellphones in affected U.S. commerce, however, did suffer an injury arising out of the price fixing’s U.S. effect.

The Illinois Brick doctrine would ordinarily bar these purchasers from recovering damages under federal law because they did not purchase directly from the conspirators, but that doctrine should be construed to permit damages claims by the first purchaser in affected U.S. commerce when Section 6a(2) bars the direct purchasers’ claims. That construction would permit vigorous private enforcement of the antitrust laws—the reason full recovery is ordinarily concentrated in direct purchasers—without implicating the doctrine’s concerns about multiple recovery and apportionment. Absent that construction, it is possible that no private plaintiff could recover damages under the federal antitrust laws.

In any case, government enforcement is critical to combating foreign price-fixing cartels that threaten significant harm in the United States. Therefore, this Court should hold that a conspiracy to fix the price of a component can directly affect import commerce in finished products incorporating that component and that the conspiracy in this case did directly affect that commerce. That holding would ensure the government is able to enforce the federal antitrust laws regardless of any limitations on private damages claims resulting from Section 6a(2).”

Emphasis added, footnotes omitted.

BILL BAER DOJ SPEECHES

On September 10, 2014, Bill Baer, the Assistant Attorney General Antitrust Division U.S. Department of Justice, gave the attached speech, BAER SPEECH ON ANTITRUST PROSECUTION, at the Georgetown Antitrust Enforcement Symposium entitled “Prosecuting Antitrust Crimes” in which he addressed the importance of enforcement of the antitrust laws against cartels and the importance of the leniency system. With regards to the prosecution of antitrust cases, Assistant Attorney General Bill Baer stated:

“Those who conspire to subvert the free market system and injure U.S. consumers are prosecuted vigorously and penalized appropriately. Our record demonstrates that corporations that commit these crimes face serious consequences, including significant criminal fines and, in appropriate cases, tough probation terms. Individual wrongdoers risk lengthy sentences. Courts have imposed criminal fines on corporations totaling as much as $1.4 billion in a single year; the average jail term for individuals now stands at 25 months, double what it was in 2004. Those penalties tell only part of the story. Perpetrators also must confront private and state civil suits seeking treble damages and risk other collateral consequences for their crimes.

Often our prosecutions end with plea agreements. So long as price fixers are held accountable for their crimes, this is an efficient and appropriate way to resolve criminal price-fixing allegations. When the defendant exercises its right to put us to our proof, however, we have the obligation to proceed to trial to ensure justice is done. Our recent record demonstrates the division’s willingness and ability to prosecute successfully antitrust criminal violations. . . . And just this summer, the Ninth Circuit affirmed the corporate convictions of AU Optronics and its American subsidiary, and the individual convictions of two of its executives for fixing prices in the LCD industry. . . .

We also increasingly benefit from working closely with competition enforcers from many agencies around the world.

Our successful efforts to detect and prosecute cartels also reflect the broad consensus in the United States that schemes to deny consumers the benefits of competition have no place in the free market and merit significant punishment. This is not a partisan issue. This Administration and its predecessors have made cartel enforcement a top priority.”

On September 12, 2014 Assistant Attorney General Bill Baer spoke at Fordam Law School on “International Antitrust Enforcement: Progress Made; Work To Be Done”. In the attached speech, BAER SPEECH INTERNATIONAL CARTEL. the Assistant Secretary spoke of the importance of not letting industrial policy and protectionism trump competition concerns in the enforcement of antitrust laws and indirectly criticized China’s enforcement of its Anti-Monopoly Law:

“The U.S. and EU share the core belief that antitrust enforcement must protect and promote competition and consumer welfare. We base our respective enforcement decisions on the competitive effects and consumer benefits of the transaction or conduct being reviewed. We agree that non-competition factors, such as the pursuit of industrial or domestic policy goals, play no role in sound competition enforcement.

The U.S. and EU also agree that antitrust agencies are most effective when they follow decision-making processes that are fair, independent and transparent. Our shared commitment to process pays off. It increases the likelihood that our agencies will be positioned to obtain and consider all relevant facts and issues prior to making a decision. This, in turn, enhances the legitimacy and credibility of our enforcement decisions, and increases the parties’ and public’s confidence in the agency’s ultimate determination. . . .

Worldwide, the total criminal and regulatory fines, penalties and disgorgement obtained to date by law enforcement authorities is over $4 billion.

The international competition community increasingly embraces that view. Progress is being made towards convergence on due process and transparency. However, more work needs to be done. We must continue to seek broad international consensus on the principle that enforcement decisions be based solely on the competitive effects and consumer benefits of the transaction or conduct being reviewed. We must ensure that enforcement decisions are not used to promote domestic or industrial policy goals, protect state-owned or domestic companies from foreign competitors, or create leverage in international trade negotiations.

That is a straightforward and sensible proposition. We are living in a globalized economy where the number of companies operating in multiple jurisdictions continues to rise and there is a greater likelihood that anticompetitive transactions or conduct in one jurisdiction will harm competition and consumers in other parts of the world.

This is an easy proposition to state as a shared value. But it is challenging to implement, especially for enforcers in jurisdictions that are early in the process of moving from a planned economy to a free market system; are shifting their focus from promoting producer welfare to consumer welfare; or have state-owned and domestic corporations with considerable influence over enforcement authorities. Nonetheless, antitrust enforcers in such jurisdictions need to overcome these challenges and commit to making enforcement decisions based solely on competitive effects and consumer benefits. Otherwise, they risk losing the trust and confidence of businesses that are looking to enter or expand in their markets, but may be reluctant to do so out of fear that the playing field is not level. . . . .

Fourth, antitrust enforcement involving intellectual property rights should not be used to implement domestic or industrial policies. Such an approach undermines the integrity and credibility of an agency’s decisions. Enforcers need to be particularly careful about imposing price controls or prohibiting so-called excessive pricing. Pricing freedom in bilateral licensing negotiations is critical for intellectual property owners. I share the concern FTC Chairwoman Ramirez expressed earlier this week with antitrust regimes that appear to be advancing industrial policy goals by “imposing liability solely based on the royalty terms that a patent owner demands for a license . . . .” U.S. antitrust law does not bar “excessive pricing” in and of itself; generally speaking, lawful monopolists may set any price they choose.

This rule applies to holders of intellectual property rights as well. In addition, regardless of the underlying theory of antitrust liability, I am concerned about antitrust regimes that appear to force adoption of a specific royalty that is not necessary to remedy the actual harm to competition. Using antitrust enforcement to reduce the price firms pay to license technology owned and developed by others is short-sighted. Any short-term gains derived from imposing what are effectively price controls will diminish incentives of existing and potential licensors to compete and innovate over the long term, depriving jurisdictions of the benefits of an innovation-based economy.

Now, you may be asking why U.S. antitrust enforcers should care about what other enforcers do within their jurisdictions. There are many reasons. Here are a few.

First, U.S. enforcers can best cooperate with their foreign counterparts on investigations when there is agreement on core analytics and procedural principles. This, in turn, allows U.S. enforcers to more effectively and efficiently address anticompetitive transactions and conduct.

Second, we are continuing to move toward an interconnected global economy. This means that U.S. companies and consumers will increasingly be subject to or affected by the enforcement approach taken by antitrust agencies in other jurisdictions.

Third, convergence on substantive and procedural principles will help U.S. and non-U.S. companies comply with competition laws in a more cost-effective manner, as well as provide them the predictability that they need when trying to run their businesses in multiple jurisdictions.”

Emphasis added.

NEW ANTITRUST COMPLAINTS

On September 11, 2014, elQ Energy Inc., filed an antitrust case against a number of Japanese, and US for price fixing of antalum capacitors, aluminum electrolytic capacitors and film capacitors. JAPAN PRICE FIXING ALUMINUM CAPACITERS

On August 29, 30204, National Trucking Financial Reclamation filed a class action antitrust case against US and Taiwan companied, including Jui Li Enterprise Company, Ltd., TYG Products, L.P., Gordon Auto Body Parts Co., Ltd., Auto Parts Industrial, Ltd., and Cornerstone Auto Parts, LLC., for price fixing of aftermarket automotive sheet metal parts. TAIWAN SHEET METAL ANTITRUST COMPLAINT

CHINA ANTI-MONOPOLY CASES

The rise in Chinese anti-monopoly case has created intense concern from the US government and US and foreign companies. In September 2014, the US China Business Council published the major report/survey from US Companies, US CHINA BUSINESS COUNCIL REPORT CHINA AML, about the impact of the Chinese anti-monopoly law on US business in China. The Executive Summary of the report states as follows:

“Executive Summary

  • China’s increased level of competition enforcement activity and the high-profile reporting of its competition investigations have prompted growing attention and concern from US companies. Eighty-six percent of companies responding to the US-China Business Council’s (USCBC’s) 2014 member company survey indicated they are at least somewhat concerned about China’s evolving competition regime—although more so about the potential impact than actual experience so far.
  • China’s competition regime framework is relatively new. The Antimonopoly Law (AML) came into force in 2008 after Chinese authorities spent more than a decade drafting the law and consulting with foreign competition authorities from the United States, the European Union, and other jurisdictions. The AML draws from elements of both the US and EU competition laws, though it is more closely tied to the EU model and contains some elements unique to China.
  • The rise in competition-related investigations has corresponded to the buildup in personnel at regulatory agencies following the AML’s implementation.
  • USCBC monitoring of publicly announced cases indicates that both foreign and domestic companies have been targets of AML-related investigations, but that foreign companies appear to have faced increasing scrutiny in recent months.
  • The perception that foreign companies are being disproportionately targeted is also fueled by China’s domestic media reporting, which has played up foreign-related investigations versus those of domestic companies.
  • Targeted or not, foreign companies have well-founded concerns about how investigations are conducted and decided. Company concerns include:

 o Fair treatment and nondiscrimination

o Lack of due process and regulatory transparency

o Lengthy time periods for merger reviews

o Role of non-competitive factors in competition enforcement

o Determination of remedies and fines

o Broad definition of monopoly agreements

Bigger questions remain unanswered about the objectives of China’s competition regime, such as: Will China use the AML to protect domestic industry rather than promote fair competition? Is the government using the AML to force lower prices, rather than let the “market play the decisive role” as enshrined in the new economic reform program? The answers are not fully determined yet, but in at least some cases so far there are reasons for concern.”

In early September 2014 the US Chamber of Commerce released the attached report, AM CHAM ACTUAL REPORT ON AML, which is highly critical of the Chinese government’s enforcement of its Anti-Monopoly Law. The report states:

Antitrust enforcement

This year, the area that has garnered the most attention from foreign companies is enforcement of China’s antitrust law, known as the Antimonopoly Law (AML). In recent months, the press and the public have paid considerable attention to this issue. While both foreign and domestic companies have been targets of investigations, foreign companies appear to have faced increasing scrutiny in recent months. Eighty-six percent of companies are at least somewhat concerned about these issues, with over half specifically citing enforcement as the issue, rather than the legal framework for the law (Fig. 34, 35).

Even though most American companies report that they have not been targeted with antitrust investigations, almost 30 percent of USCBC member companies are concerned they will be subjected to one. Among the most significant concerns for foreign companies are challenges with due process, lack of transparency, and fair treatment in investigations (Fig. 36, 37).

As US antitrust cases have been on the rise in the United States, they are sharply rising against Chinese and foreign companies, including US companies, in China. The recent surge in antitrust cases reaches US and foreign companies like Qualcomm, Interdigital, Microsoft, Chrysler and Mercedes-Benz.

On July 24, 2014, it was reported that the National Development and Reform Commission (“NDRC”), one of China’s three National Antitrust Agencies, announced that it had determined that US chipmaker Qualcomm is a monopoly and was suspected of overcharging and abusing its market position in wireless communication standards. The allegations could lead to record fines of more than $1 billion.

As the Chinese consumer market surges upward, Western companies are seeing their profits fall downward after this wave of antitrust cases. The China media has reported that the prices of many foreign items, including a Starbucks latte to a Jaguar sedan, are higher in China than in many other places in the world.

Chinese consumers, who now travel the World, are complaining. According to the media, although some of the prices differences are explainable by factors, such transportation, real-estate costs, higher Chinese import taxes and fragmented supply chains in which multiple distributors each add a markup, at least some multinationals allegedly have adopted sales practices in China that would not be tolerated by antitrust regulators in Europe or the US. Automobile companies do not always give their Chinese customers a choice in their purchase of spare parts, causing high prices.

What concerns the US government, however, is procedures, the heavy-handed way that investigations are being pursued, and the highly charged media coverage that makes for a very bad atmosphere for Western companies.

Foreign companies have learned two early lessons from the antitrust probes. First, the law provides little protection. The message that the National Development and Reform Commission, Chinese agency that sets pricing rules, delivers in private to multinationals at the outset of a price-fixing investigation is not to bring in their foreign lawyers. The second lesson, apparently, is resistance is futile.

In almost every antitrust case launched so far, foreign companies have settled without a fight. Voluntary price cuts of up to 20% are the norm, accompanied by board-level expressions of remorse and promises to do better. Chrysler described its abrupt decision to slash car-part prices as a “proactive response” to the price fixing probe as it got under way.

These price-fixing investigations have been accompanied by heated nationalistic rhetoric in the state media with anti-foreign overtones. Pushing down multinationals goes over well with large sections of the Chinese public that view the foreign companies as arrogant. The China Youth Daily recently stated that multinationals “pollute the environment, lie to consumers, act arrogantly when facing their wrongdoings, and ignore China’s law and protests from Chinese consumers.”

For many years that China’s Anti-Monopoly Law has been in place, enforcement has been lax, but the National Development and Reform Commission (“NDRC”) and the State Administration for Industry and Commerce (“SAIC”), the two agencies charged with enforcing the AML’s antitrust provisions, have rapidly increased enforcement over the last year, with probes into Qualcomm Inc., Microsoft, and now international automakers. The action has come at the same time as the government has voiced a broader intention to promote the creation of Chinese players in many key industries, contributing to the impression that the latest antitrust probes may have a protectionist bent.

While technically, agency decisions can be appealed to China’s administrative courts, the courts tend to defer to the agencies in all but the most blatant violations of the law. That means that as a practical matter companies don’t have the same ability to force the agencies to defend themselves in court the way firms do in the U.S. and Europe.

In response to these reports on September 21, 2014, Treasury Secretary Jack Lew sent a letter to Chinese Vice Premier Wang Yang raising serious concerns about China’s enforcement of its anti-monopoly law (AML). Sources reported that this is a sign that mounting U.S. business complaints regarding the law have reached a high political level. In commenting on the letter, Secretary Lew stated:

“But let me say that this issue of the anti-monopoly law is one that we’ve raised at the [Strategic & Economic Dialogue (S&ED)], and we made very clear that if the anti-monopoly law is used to essentially work disproportionately against U.S. and other foreign firms and it [is] used as a barrier to doing business, or an extra cost to doing business, that that was something that was very much inconsistent with the close economic relationship we’re together working to build.”

“We’ve been very clear in many forms that the anti-monopoly law is something that we see as part of this set of issues, and I certainly hope that they understand how important that issue is to us.”

Subsequently Bill Baer’s speech quoted above appeared to reinforce the statement by Secretary Lew, especially his quote that antitrust enforcement decisions must not be used to “promote domestic or industrial policy goals, protect state-owned or domestic companies from foreign competitors, or create leverage in international trade negotiations.”

The problem with the statement is that it is easy for the US Government to say. When US antidumping laws based on Alice in Wonderland surrogate values that have no relationship to actual prices and costs in China are used to block billions of dollars in Chinese imports, the Chinese government, as any government would do, is looking for leverage to force the US government to negotiate on this issue.

Chinese government officials have told me that the US government and the Commerce Department simply refuse to discuss whether China will be given market economy status in US antidumping cases as provided in the US China WTO Accession Agreement.

The US throws rocks and the Chinese government will throw rocks back.

On September 2, 2014, Foreign Ministry Spokesman Qin Gang commented on the concerns regarding China’s Anti-Monopoly Law:

The US Chamber of Commerce said that China is targeting foreign companies in its anti-monopoly investigations with opaque laws and regulations, contributing to deteriorating investment environment for foreign companies. What is China’s comment on this?

I have learned that the US Chamber of Commerce published such a report. I want to stress that China is not the only country carrying out anti-monopoly. Other countries also do it. Monopoly is opposed so as to protect consumers’ interests and create a more transparent, equal and just playing field. While carrying out anti-monopoly investigations and implementing relevant measures, relevant departments of China are strictly following the law in a transparent and impartial way.

China will, as always, encourage foreign companies and enterprises to take part in the competition in China’s market and carry out various forms of cooperation. We are willing to create a sound investment environment for them. Meanwhile, they are also required to abide by Chinese laws and regulations.

On September 8, 2014, it was reported that the US Chamber of Commerce was arguing that China’s discriminatory uses of its Anti-Monopoly was a violation of its WTO commitments. But WTO experts, including US experts, responded that the WTO’s texts and existing jurisprudence create enough uncertainty that U.S. trade authorities will likely hold off on bringing a case. Antitrust is not under the WTO and is not directly addressed in any WTO agreements.

There have been efforts to put competition rules under the WTO, but there is currently no WTO agreement in place setting obligations on WTO members with regards to the objective of their antitrust statutes. This would force the USTR to try to cherry-pick from other WTO texts. The WTO, however, has been very reluctant to expand WTO law beyond a specific agreement.

In reality, the US Chamber of Commerce argument may be an attempt to elevate the issue in the Strategic & Economic Dialogue meetings between the US and China.

AUTOMOBILES — CHRYSLER AND MICROSOFT

On September 11, 2014, the NDRC, one of the three Chinese enforcement agencies of its Anti-Monopoly law announced penalties of a combined $46 million for foreign carmakers for price-fixing. The foreign carmakers include Volkswagen AG and the China sales unit of Fiat’s Chrysler. Chrysler’s China sales unit will be fined 32 million yuan/$5 million US for operating a price monopoly.

On September 28, 2014, in a meeting with China’s State Administration for Industry and Commerce (SAIC) Microsoft Corp chief executive Satya Nadella promised to cooperate fully with Chinese authorities in their antitrust investigation into his company.

It was also reported that Director General Xu Kunlin of the NDRC, nicknamed Mr. Confession, was one the officials behind the increased tough enforcement of China’s Anti-Monopoly Law.

SEMICONDUCTORS AND MEDICAL DEVICES??

In early September, there were reports that MOFCOM had conducted antitrust unit visits to medical device and semiconductor firms in Shanghai.

ARTICLES BY CHINESE ANTITRUST LAWYER MICHAEL GU

In mid-September Michael Gu and Shuitian Yu of the Anjie Law Firm issued the attached article, GU NDRC Publishes Full Decisions in Zhejiang Car Insurance Case_AnJie_Michael Gu_20140911, “Better Late Than Never: NDRC Publishes Full Decisions on Zhejiang Car Insurance Cartel Case – Analysis of NDRC’s Antitrust Law Enforcement Approach”

TD MICROSOFT ARTICLE

In the attached August 2014 report on Chinese antitrust law by the Chinese T&D Law Firm, TD Antitrust Report, Chinese antitrust lawyer John Ren had this to say about the Microsoft case:

“On August 4, 2014, the SAIC warned Microsoft not to interfere with an ongoing anti-monopoly probe as they began inquiries into the company’s corporate Vice President Mary Snapp.

Investigators from the SAIC warned that the company must firmly abide by Chinese law, and shall not interfere with the investigation “in any way”.

SAIC confirmed that it launched a probe into Microsoft China Co., Ltd, and three of its branches in Shanghai, Guangzhou and Chengdu as Microsoft is suspected of monopoly practices.

SAIC also said Microsoft had not been fully transparent with its sales data on the software it distributes in China, including information on sales of its media player and web browser software. . . .

SAIC Investigating Accenture in Microsoft Probe

August 6, 2014

According to the report, SAIC’s probe into Microsoft expanded to Accenture on August 6 as Microsoft is under investigation.

The SAIC said in a statement that it is investigating Accenture’s office in Dalian City, Liaoning Province, for being the financial service outsourcer of Microsoft China Co., which is suspected of monopoly practices. The SAIC did not reveal results of the investigation and the probe is still underway

Microsoft’s Browsers and Players are Involved in SAIC’s Anti-Monopoly Investigation

August 27, 2014

With regard to the progress of the anti-monopoly investigation on Microsoft, Mr. Zhang Mao, the Minister of the SAIC, revealed at a press conference held by the State Council Information Office that Microsoft is suspected of inadequate disclosure of information in relation to Windows and Office and suspected problems regarding the launch and sale of Players and Browsers. Currently, the investigation on Microsoft is progressing, and the SAIC will publicize the interim results at every stage in a timely manner. Compared to its previous statements, SAIC talked about Microsoft’s potential problems on the launch and sales of Players and Browsers for the first time.

It is said that in June, 2013, some entities complained to SAIC that Microsoft’s incomplete disclosure of information on its Windows and Office Suite has caused problems with compatibility, tying, and file validation, raising suspicions that the company violated the Chinese AML. SAIC therefore investigated Microsoft, accordingly. In June of this year, SAIC initiated the investigation against Microsoft and already publicized the progress of its investigation three times. Minister Zhang also mentioned that Microsoft’s senior management has expressed that they will respect Chinese law and cooperate with the Chinese anti-monopoly authority in the investigation.”

SECURITIES

FOREIGN CORRUPT PRACTICES ACT (“FCPA”)

In a fascinating six part series on the origins of the Foreign Corrupt Practice Act, Tom Gorman, a partner in our Washington DC office and a former member of the SEC Enforcement Division, describes the origins of the FCPA and why this law came into being, including the reasons for prohibiting the bribery of foreign officials. The first part and the conclusion are published in this e-mail. The entire article is attached, TOM GORMAN ENTIRE ARTICLE ORIGINS OF FCPA.  As Tom Gorman states:

PART ONE THE ORIGINS OF THE FCPA: LESSONS FOR EFFECTIVE COMPLIANCE AND ENFORCEMENT

“They trusted us” — Judge Stanley Sporkin explaining why 450 corporations self- reported in the 1970s Volunteer Program without a promise of immunity.

This is the first part of an occasional series. The entire paper will be published by Securities Regulation Law Journal early next year.

Introduction

Can one man make a difference? Stanley Sporkin is proof that the answer is “yes.” In the early 1970s he sat fixated by the Watergate Congressional hearings. As the testimony droned on about the burglary and cover-up, the Director of the Securities and Exchange Commission’s (“SEC” or “Commission”) Enforcement Division sat mystified. Witnesses spoke of corporate political contributions and payments. “How does a public company book an illegal contribution” the Director wondered. “Public companies are stewards of the shareholder’s money – they have an obligation to tell them how it is used” he thought. He decided to find out.

The question spawned a series of “illicit” or foreign payments cases by the Commission resulting in the Volunteer Program. Under the Program, crafted by Director Sporkin and Corporation Finance Director Alan Levinson, about 450 U.S. corporations self-reported illicit payments which had been concealed with false accounting entries. There was no promise of immunity but the Director had a reputation for doing the right thing, being fair. Ultimately the cases and Program culminated with the passage of the Foreign Corrupt Practices Act (“FCPA”), signed into law by President Jimmy Carter in 1977.

Today a statute born of scandal and years of debate continues to be debated. Business groups and others express concern about the expansive application of the FCPA by enforcement officials and the spiraling costs to resolve investigations. Enforcement officials continue to call for self-reporting, cooperation and more effective compliance. While the debate continues, both sides might do well to revisit the roots of the FCPA. The success of the early investigations and the Volunteer Program is not attributable to overlapping enforcement actions, endless investigations, draconian fines and monitors. Rather, it was a focus on effective corporate governance – ensuring that executives acted as the stewards of shareholder funds. Director Sporkin called this “doing the right thing.” A return to that focus may well end the debate and yield more effective compliance and enforcement.

The beginning

The Watergate Congressional hearings transfixed the country. A scandal was born from a burglary at the Watergate Hotel in Washington, D.C. by the Committee to Reelect the President, known as CREP. The hearings were punctuated by a series of articles in The Washington Post based on conversations with a source known only as “deep throat.” Later the two reporters would become famous. President Richard Nixon would resign in disgrace. His senior aides would be sentenced to prison. See generally, Carl Bernstein & Bob Woodward, All the President’s Men (1974).

 A little-noticed segment of the hearings involved corporate contributions to politicians and political campaigns. Most observers probably missed the slivers of testimony about illegal corporate conduct since they were all but drowned in the seemingly endless testimony about the burglary, cover-up and speculation regarding the involvement of the White House.

One man did not. Then SEC Enforcement Director and later Federal Judge Stanley Sporkin was fixated. He listened carefully to the comments about corporate political contributions. The Director wondered how the firms could make such payments without telling their shareholders: “You know, I sometimes use the expression, ‘only in America could something like this happen.’ There I was sitting at my desk . . . and at night while these Watergate hearings were going on I would go home and they’d be replayed and I would hear these heads of these companies testify. This fellow Dorsey from Gulf Oil . . . and it was interesting that somebody would call Gulf Oil and they would say we need $50,000 for the campaign.

Now everybody, I knew that corporations couldn’t give money to political campaigns . . . what occurred to me was, how do you book a bribe . . . ” A Fire Side Chat with the Father of the FCPA and the FCPA Professor, Dorsey & Whitney LLP Spring Anti-corruption conference, March 23, 2014, available at www.SECHistorical.org. at 3 (“Transcript”).

What, if any information did the outside auditors have was another key question, according to the Director. Stanley Sporkin, “The Worldwide Banning of Schmiergeld: A Look at the Foreign Corrupt Practices Act on its Twentieth Birthday,” 18 Nw. J. Int. L. & Bus. 269, 271 (1998) (“Sporkin”). Not only was he fascinated by the testimony but “something bothered him [Director Sporkin]. It was the thought of all that money moving around in businessmen’s briefcases. That money belonged to corporations. Corporations belong to investors. The SEC protects investors. So Sporkin investigated.” Mike Feensilber, He Terrorizes Wall Street, The Atlanta Constitution, Section C at 19, col. 1 (March 21, 1976) . . .

An informal inquiry was initiated. As Judge Sporkin recounts: “To satisfy my curiosity [about how the payments were recorded in the books and records] I asked one of my staff members to commence an informal inquiry to determine how the transactions were booked.” Sporkin at 571. This “was not one of these elaborate investigations where you have 5 people. I called in a guy named Bob Ryan and I said, Bob, go to Gulf Oil.” Transcript at 3. A day later the answer came back: “[W]hat happened was that Gulf Oil had set up two corporations; one called the ANEX, one called the ANEY, capitalized . . . with the $5 million each; took the money back to New York, put it into [Gulf Chairman] Dorsey’s safe at the head of Gulf Oil and there he [Dorsey] had a slush fund, a corporate fund of $10 million.” Id. at 4. The payments were not reflected in the books and records of the company – the shareholders were not told how their money was being used.

It was apparent that corporate officials “knew they were doing something that was wrong because the reason they set [it] up this was . . . is because they didn’t want to expense the money so they capitalized it. And why did they want to expense the money . . . [Director Sporkin explained is] Because they were afraid, not of the SEC, but of the IRS. So it . . . right from the beginning . . . it showed me that there was something afoul here,” Director Sporkin later recounted. Id. at 4. Indeed, it was clear that senior corporate officials had painstakingly designed a methodology to secrete what they knew were wrongful transactions. Sporkin at 271. . . .

See the attached article for parts 2-5.

PART 6

Conclusion: The FCPA Today

The FCPA was unique in the world at passage. It was born of controversy and scandal. The Watergate hearings which transfixed Director Sporkin and the rest of the country spawned unprecedented and far ranging issues and questions. The hearings ushered in a new era of moral questioning.

In the turmoil of that environment Director Sporkin focused on corporate governance, viewing corporate boards and officers as stewards of investor funds. That principled view propelled the SEC investigations, enforcement actions and the Volunteer Program, all of which culminated after two years of Congressional hearings and debate in the Foreign Corrupt Practices Act.

The statute was intended to implement the principles that gave rise to its birth. It was tailored and focused:

Bribery prohibited: The anti-bribery provisions prohibit issuers and other covered persons from corruptly attempting, or actually obtaining or retaining, business through payments made to foreign officials;

Accurate books and records: The books and records provisions were designed to ensure that issuers – those using money obtained from the public – keep records in reasonable detail such that they reflect the substance of the transactions;

Auditors get the truth: Making misstatements to auditors examining the books and records of issuers was barred; and

Effective internal controls: Companies were required to have internal control provisions as an assurance that transactions with shareholder funds are properly authorized and recorded.

The impetus for the passage of the FCPA was not a novel crusade but the basic premise of the federal securities laws: Corporate managers are the stewards of money entrusted to them by the public; the shareholders are entitled to know how their money is being used.

The settlements in the early enforcement actions and the Volunteer Program were designed to implement these principles. The FCPA was written to strengthen these core values.

Today the statute continues to be surrounded by controversy. While the FCPA is no longer unique in the world, U.S. enforcement officials are without a doubt the world leaders in enforcement of the anti-corruption legislation. A seemingly endless string of criminal and civil FCPA cases continues to be brought by the Department of Justice (“DOJ”) and the SEC. The sums paid to resolve those cases are ever spiraling. What was a record-setting settlement just a few years ago is, today, not large enough to even make the list of the ten largest amounts paid to settle an FCPA case. The reach of the once focused statute seems to continually expand such that virtually any contact or connection to the United States is deemed sufficient to justify applying the Act.

For business organizations the potential of an FCPA investigation, let alone liability, is daunting. Compliance systems are being crafted and installed which often incorporate each of the latest offerings in the FCPA market place at significant expense. If there is an investigation, the potential cost of the settlement is only one component of the seemingly unknowable but surely costly morass facing the organization. Typically business organizations must deal with the demands of two regulators in this country and perhaps those of other jurisdictions. The internal investigations that are usually conducted to resolve questions about what happened are often far reaching, disruptive, continue for years and may well cost more than the settlements with the regulators. Since most companies cannot bear the strain of litigating an FCPA case, enforcement officials become the final arbitrator on the meaning and application of the statutes – arguing legal issues may well mean a loss of cooperation credit with a corresponding increase in penalties.Enforcement officials today continue to call for self-reporting as the SEC did at the outset of the Volunteer Program.

Today, however, while many companies do self-report since they may have little choice, there can be an understandable reluctance in view of the potential consequences. Indeed, self-reporting might be viewed as effectively writing a series of blank checks to law firms, accountants, other specialists and ultimately the government with little control over the amounts or when the cash drain will conclude.This is not to say that companies that have violated the FCPA should not be held accountable. They should.

At the same time it is important to recall the purpose of the statutes: To halt foreign bribery and to ensure for public companies that corporate officials are accountable as faithful stewards of shareholder money.While business organizations may express concern about enforcement, accountability begins with the company, not the government. That means installing effective compliance systems using appropriate methods, not just adopting something off the shelf or purchasing the latest offering in the FCPA compliance market place. It means programs that are effective and grounded in basic principles, not just ones that furnish good talking points with enforcement officials if there is a difficulty.

The key to effective programs is to base them on the principles of stewardship which should be the bedrock of the company culture. Accountability for the funds of the shareholders begins with effective internal controls, a key focus when the statute was passed which remains critical today. As Judge Sporkin recently commented: “The problem I see in compliance is that they are not really putting in the kinds of effort and resources that’s necessary here. And I really think that you’ve got to get your compliance department, your internal audit department working together; in too many instances you find that they’re working separately.” Transcript at 18.

The focus is also critical. These systems are not just a defense to show regulators if something goes wrong. Rather, the systems should reflect the culture of the organization. As SEC Commissioner John Evans stated as the events which led to the passage of the FCPA were unfolding:

“I am somewhat concerned that the issue of illegal and questionable corporate payments is being considered by some in a context that is too narrow, legalistic, and short-sighted. In view of the objectives of the securities laws, such as investor protection and fair and honest markets, compliance with the spirit of the law may be more meaningful and prudent than quibbling about meeting the bare minimum legal requirements. I would submit that many companies and their profession accounting and legal advisers would serve their own and the public interest by being less concerned with just avoiding possible enforcement action by the SEC or litigation with private parties and more concerned with providing disclosure consistent with the present social climate. Such a course of conduct should promote the company’s public image, its shareholder relations, its customer relations, and its business prospects . . ..” Evans at 14-15.

Accountability is also critical on the part of enforcement officials. Every case does not demand a draconian result with a large fine, huge disgorgement payments, multiple actions or a monitor. Every case need not be investigated for years at spiraling costs which may bring diminishing returns. The statutes need not be interpreted as an ever expanding rubber band with near infinite elasticity. Rather, enforcement officials would do well to revisit the remedies obtained in the early enforcement cases and those employed with great success in the Volunteer Program. And, they would do well to recall the reason 450 major corporations self-reported without a promise of immunity or an offer of cooperation credit: As Judge Sporkin said, “They trusted us.”

SECURITIES COMPLAINTS

In addition to the securities complaints filed against Chinese companies, the SEC and Chinese individuals are filing securities complaints against US companies, some of which are operated by Chinese individuals, to set up fraudulent EB5 immigration plans. EB5 allows foreign individuals to invest in certain properties in the United States that have been designated as underdeveloped and obtain a green card for a $500,000 investment in the project. The EB5 projects, however, are complicated and investors have to beware and make sure that the project they invest in is a legitimate EB5 project.

On September 3, 2014, the Securities and Exchange Commission filed the attached securities complaint, FAKE EB5 CENTER, against Justin Moongyu Lee and his partner Thomas Kent and the American Immigrant Investment Fund, Biofuel Venture, Nexland Investment Group and Nexsun Ethanol. In the complaint, the SEC states:

This case involves a scheme perpetrated by two immigration attorneys,

Defendant Justin Moongyu Lee (“J. Lee”) and his law partner Defendant Thomas Edward Kent (“Kent”), as well as J. Lee’s spouse, Defendant Rebecca Taewon Lee (“R. Lee”). J. Lee, Kent and R. Lee defrauded Chinese and Korean investors by claiming that their monies would be invested in a program that met the requirements of the United States Government EB-5 visa program, which is administered by the United States Citizenship and Immigration Service (“USCIS”), and provides immigrant investors conditional permanent residency status for a two-year period, followed by permanent residency if the required program conditions are met.

Specifically, the Defendants represented that the offered investment was EB-5 eligible, and money raised would be used to build and operate an ethanol production plant in Kansas.

On September 10, 2014, Liu Aifang and a number of Chinese individuals filed the attached class action securities complaint, ANOTHER SECURITIES COMPLAINT, against Velocity VIII Limited Partnership, Velocity 240.10b-5), Regional Center LLC, REO Group Properties, LLC, Yin Nan Wang, a.k.a Michael Wang, Yunyan Guan, a.k.a, Christine Guan, Ben Pang, REO Property 9roup’, LLC, Frank Zeng and other unnamed individuals for setting up a fraudulent EB5 project in the United States.

On September 12, 2014, Ranjit Singh filed the attached class action securities complaint against 21 Vianet Group., Inc., a company headquartered in China.  CAYMAN CORP

On September 17, 2014, Wayne Sun filed a class action securities case against 21 Vianet Group., Inc., a company headquartered in China, and several Chinese individuals. SECURITIES COMPLAINT

On September 22, 2014 the SEC filed a securities case against Zhunrize, Inc., a US company, and Jeff Pan for a fraudulent plan to raise money from investors China and Korea. PAN CHINESE INVESTORS

On September 26, 2014, David Helfenbein filed a class action securities case against Altair Nanotechnologies, a company with operations in China, Alexander Lee, Richard Lee, Guohua Sun, James Zhan, Stephen B. Huang, Paula Conroy and Karen Wagne. NANOTECHNOLOGIES

On September 29, 2014, the SEC filed a securities case against China Valves Technology, Siping Fang, Jianbo Wang, Renrui Tang for filing false and misleading documents with the SEC. SECCHINAVALVES

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

Best regards,

Bill Perry

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

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