US CHINA TRADE WAR–CHINESE ANTIDUMPING CASE, TRADE, CUSTOMS, ANTITRUST, SECURITIES

Dragon Bronze Statue Gugong Forbidden City Palace Beijing ChinaDear Friends,

There have been more developments in the US China Trade War.

TRADE

TRADE WAR IN PULP, PAPER AND WOOD PRODUCTS

The most important development may be the February 6, 2013 decision of the Chinese government to launch a major antidumping case against the United States, Canada and Brazil on Cellulose Pulp.  The target is estimated to be about $2 billion in exports to China of Cellulose Pulp.

A translated version of the announcement by the Ministry of Commerce (“MOFCOM”) is attached.  2.2Cellulose Pulp Notice of Initiation_EN  The target companies in the US, Canada and Brazil are as follows:

US

Buckeye Technologies Inc

Rayonier Inc.

Cosmo Specialty Fibers, Inc.

Weyerhaeuser Company

GP Cellulose, LLC

CANADA

Tembec Inc

Fortress Specialty Cellulose INC

Neucel Specialty Cellulose Ltd

AV Nackawic Inc.

AV Cell Inc.

BRAZIL

Sateri Holdings Limited

The respondent companies now only have 20 days from the date of initiation or by approximately February 26th to enter a notice of appearance at MOFCOM.

One very important point of Chinese antidumping and countervailing duty law, which is different from US antidumping and countervailing duty law, Chinese Customs will assume that an imported product is in the case if it is imported under specific Tariff Code Numbers in the case.  In the Pulp Case, the specific Tariff Numbers are: 47020000, 47061000 and 47063000.

If an exporter or importer’s product is in the case, the burden is on them to go into MOFCOM and show that their product is out of the case and not covered by the antidumping or countervailing duty order.  A foreign company cannot assume its product is out of the case from the written description if its product is imported under the relevant Chinese HTS numbers

SOLAR CELLS

The Petitioners in the Solar Cells case have appealed the Commerce Department’s antidumping and countervailing duty decisions to the Court of International Trade.  One of the allegations in the complaints is directed at the Commerce Department’s decision to exclude Chinese Solar Panels and Modules when they include solar cells made in third countries.  Attached are copies of the complaints.  SOLAR WORLD AD COMPLAINT SOLAR WORLD COMPLAINT

CUSTOMS— ANTIDUMPING AND CVD COLLECTIONS

Customs has issued a large attached report on trade trends in 2012.  CUSTOMS YEAR END Customs reports that antidumping duties and countervailing duties have increased to record levels based on a record level of imports of $2.4 trillion.  The report states:

“Antidumping duty deposits increased by nearly $43 million to $329 million, a 13 percent increase over fiscal year 2011. Countervailing duty deposits more than doubled from $27 million in fiscal year 2011 to $69 million in fiscal year 2012, a 160 percent increase.”

SENATE LETTER ON MISSING ANTIDUMPING DUTIES

Meanwhile, Congress continues to increase pressure on Customs to collect the missing antidumping duties.  Attached is a February 7, 2013 letter to Customs from Senators Wyden and Thune protesting Customs failure to collect “massive amounts of duties under four antidumping (AD) orders” and, in particular, Customs failure to push the bond insurance companies to pay those missing duties.  SENATE LETTER RE MISSING BONDS FOR AD DUTIES  The letter states in part:

“These orders cover imports of honey, canned mushrooms, garlic and crawfish tail meat from China (Four Orders).  We found CBP’s response deeply troubling and glaringly incomplete. It failed to provide any meaningful answers to our questions about the hundreds of single-entry “new shipper” bonds CBP accepted to secure the payment of AD duties assessed under the Four Orders.

Our request was based on the following, widely-acknowledged facts:

l. According to CBP’s own data, the agency failed to collect almost $1 billion in AD duties assessed under the Four Orders from 2003-2011. It collected less than 10 percent of all duties assessed under those orders during that period.

2. The bulk of these duties are owed by importers who entered goods from exporters that were undergoing “new shipper” administrative reviews under the Four Orders before 2006.

3. Most of those duties are secured by single entry bonds (SEBs), which the importers were required to post with CBP upon entry. Each bond has a face value of two to four times the total value of the covered imports. According to CBP’s own data, the combined value of all SEBs on unliquidated entries from new shipper exporters under the Four Orders totaled $347 million as of Oct. 1, 2007.

This does not include the total value of such bonds that secured the assessed, but unpaid, duties under those orders as of that date.

4. In the wake of the importers’ massive and ongoing defaults, the insurance companies – sureties – that issued the bonds have, with rare exception, refused to pay CBP despite their legal obligation to do so.

5. Prior to the domestic producers’ filing of a lawsuit in April 2009 to compel the sureties to pay under the bonds and CBP to take legal action against the sureties, CBP had not filed a single collections lawsuit against any of the issuing sureties. Subsequent to the dismissal of that lawsuit, CBP has filed only a relatively small number of such actions.

CBP’s apathy in taking actions to collect the duties that the American people are owed is troubling, particularly at a time when the nation faces unprecedented fiscal challenges.  Collecting revenue and enforcing the trade laws is the central mission of the agency, yet the agency appears less and less interested in performing its statutory job. The American people are owed duties that are secured by sureties that issued these bonds. It is your responsibility to collect these substantial funds, which we understand could approach $500 million, without further delay.”

COUNTERFEIT TOYS FROM CHINA 

Attached is a Justice Department announcement of criminal indictment against several individuals and five corporations for importing and selling hazardous toys in violation of the Consumer Product Safety Act (CPSA) and toys bearing copyright-infringing images and counterfeit trademarks, smuggling, and money laundering.  The companies are: Family Product USA Inc., H.M. Import USA Corp., ZCY Trading Corp., Zone Import Corp. and ZY Wholesale Inc.  COUNTERFEIT TOYS

ANTITRUST

VITAMIN C CASE

In the Vitamin C case, one of the defendants, North China Pharmaceutical Group Corp. (“NCPGC”), moved for summary judgment, arguing that it should be dismissed from this litigation.  DISMISSES MOTION TO EXCLUDE CHINA NORTH PHARMACEUTICAL The Court denied the motion, finding that:

“ plaintiffs carried their burden of demonstrating a genuine dispute of material fact with regard to NCPGC’s participation in the alleged conspiracy. Although NCPGC has offered a great deal of evidence that strongly suggests it was not involved in the conspiracy, that evidence is not sufficient to persuade the Court that no reasonable jury could find that NCPGC was a participant in the alleged conspiracy.”

The Vitamin C case is now going to trial after the Court dimissed all efforts of Chinese companies to get out of the case.

SECURITIES

The Corporate/Securities world is abuzz because of a recent bench ruling by Chancellor Leo E. Strine, Jr., of the Delaware Court of Chancery, refusing to dismiss claims alleging that the former outside directors of a Delaware corporation doing business in China had breached their fiduciary duty of loyalty. The plaintiffs claimed that the directors failed their oversight function by not detecting the theft in China of the corporation’s primary assets by the Chairman in China.

Chancellor Strine firmly stated:

“if you’re going to have a company domiciled for purposes of its relations with its investors in Delaware and the assets and operations of that company are situated in China that, in order for you to meet your obligation of good faith, you better have your physical body in China an awful lot.”

The Chancellor further warned that the outside directors “better have in place a system of controls to make sure that you know that you actually own the assets” and “have the language skills to navigate the environment in which the company is operating.”

The case is In re Puda Coal, Inc. Stockholders Litigation, C.A. No. 6476-CS (Del. Ch. Feb. 6, 2013) and involves a US Delaware corporation that is the subject of a Securities and Exchange Commission (“SEC”) enforcement and a federal securities law class action based on fraud.  The auditor found that the company’s chairman had inappropriately transferred the company’s primary operating subsidiary to himself. The SEC suspended trading in the company’s stock, and the outside directors later resigned from the board of directors due to an alleged lack of cooperation from the company in trying to investigate and pursue the company’s claims.

In the Delaware case, the stockholder-plaintiffs alleged that the directors had acted in bad faith by failing to adequately monitor the corporation.  The court held that the former outside directors breached their fiduciary duty of loyalty by failing to discharge their oversight function.  The Chancellor stated that the directors “have a duty not to be dummy directors”

If you have any questions about these cases or the legal areas, please feel free to contact me.

Best regards,

Bill Perry