US CHINA TRADE WAR–ITC INJURY STANDARD, SOLAR, VITAMIN C

Shanghai Bund at Night China Flags Cars with Trademarks obscuredDear Friends,

While I have been away in China and Washington DC for three weeks working on various cases and at an oral argument in the Court of Appeals for the Federal Circuit, there have been some major developments in the Trade, Patents and Antitrust areas.

MAJOR VICTORY IN WOOD FLOORING ITC CASE

In my case, on March 20, 2013, we had a major victory in the Court of International Trade, in the attached Swiff Train et al, v. United States case, which has just been released last week to the public. PUBLIC CIT DECISION WOOD FLOORING  Judge Musgrave has sent the final affirmative injury determination by the US International Trade Commission (“ITC”) in the Multilayered Wood Flooring from China antidumping and countervailing duty case back to the ITC for a remand on a host of different issues.

The most important point in this remand decision, however, is that the Court has made clear that the ITC has to meet a higher level in finding causation in antidumping and countervailing duty cases.  Before the Commission and Court in this case and other cases, I have argued that the ITC must use a “but for” causation standard at a minimum in determining whether imports from China in antidumping and countervailing duty cases are a cause of material injury to the US industry.  The ITC has continually rejected these arguments and stated that the Commission does not have to use a “but for” standard in its injury determinations in countervailing duty and antidumping cases.

Many international trade practitioners also have criticized this argument and not used it.  Thus, the “but for” argument was not made by the respondents in the Solar Cells from China ITC injury investigation.

In Swiff Train v. United States, however, the Court of International Trade found differently.  More specifically, Judge Musgrave stated:

“Our appellate courts have explained that the “by reason of” language requires application of the “but-for” legal causation standard. . . .

The Commission needs to ensure that the subject imports, as compared to other economic factors affecting the domestic industry, were not (“sic”) a but-for cause of the injury. That is not the end of the analysis, though, because the statute requires that the injury caused be “not inconsequential, immaterial or unimportant.” 19 U.S.C. § 1677(7)(A). Thus, the Commission must determine whether the subject imports were a but-for cause of injury, as well as whether the quantum of injury was material or consequential. The court finds that the legal and factual analysis performed by the Commission in this instance misses the mark and thus the conclusion of material injury is not supported by substantial evidence.

Under applicable law, the Commission must reconsider its findings. In particular, the Commission must perform a “but-for” causation analysis of whether the subject imports materially injured the domestic industry. Paraphrasing the standard summarized in Price Waterhouse, the Commission should “begin by assuming that [the subject imports were] present at the time of [the POI], and then ask whether even if [the subject imports] had been absent, [the performance of the domestic industry] would have transpired in the same way”. Price Waterhouse, 490 U.S. at 240. The court directs the Commission to consider the impact of the subject imports “within the context of the business cycle and conditions of competition that are distinctive to the affected industry”, while considering whether the subject imports had a material “but-for” impact on the domestic industry.”

More importantly, the Court stated that although the Commission has discretion in how to apply the causation standard, the standard itself is set by the Court and that standard is now “but for” causation.

In footnote 7, the Court specifically stated:

“The Commission misunderstands its role in applying the statutory “by reason of” standard (explained in Gerald Metals and Mittal). While the Commission may, in its discretion, make findings regarding whether the standard is met or choose an evaluation methodology suited to a particular case, its discretion does not extend to defining the standard itself.”

This case will probably have a major impact on ITC injury determinations in many future antidumping and countervailing duty cases involving China if the “but for” causation standard is raised in briefing before the ITC.  This case will definitely raise the causation standard in ITC injury cases.

TRADE ARTICLE

Attached is an article that Don Bonker and I published in the China Daily on March 22, 2013 about the importance of avoiding a US China Trade War and of making US antidumping and countervailing duty laws less protectionist and more real.  CHINA DAILY MARCH 22ND  See http://usa.chinadaily.com.cn/epaper/2013-03/22/content_16335507.htm

Don and I also clarify that the real target of US Trade cases against China is the US company importing products into the United States.  We also emphasize the importance of US importers fighting in Washington DC to modernize US trade laws by giving market economy treatment to China in 2016, as required by the US China WTO Agreement, not for China, but for US importers.  As the Article states:

“While America’s trade laws are rightly intended to protect domestic producers from unfair trade practices, what is little understood is that the imposed tariffs actually penalize the US importers who end up paying the tariffs. In most cases, the vast majority of US importers are small and medium-sized US companies who are often unaware of this liability and must cope with what amounts to a heavy fine that can also be applied retroactively.

The duties, or tariffs, can be substantial. In a case involving the importation of wooden bedroom furniture, the duties for one Chinese exporter went from 16 to 216 percent, which amounted to an estimated $200 million liability that had to be paid by US importers purchasing the furniture. US importers are coping with millions of dollars in trade-related liability cases, ranging from garlic, crawfish and honey to citric acid, silicon metal, ironing tables, wooden bedroom furniture, steel wire nails and many products too numerous to mention, often causing US import companies to go bankrupt.

In some cases, prohibitive tariffs can be counterproductive. The Obama administration has clamped down on the importation of renewable energy products (wind towers, solar cells, etc), driving up costs of clean and efficient energy production, thus undermining what was a high priority for his first term. In the last two years, countless solar and wind towers plants have gone bankrupt due, in part, to the higher tariffs that make it difficult for these startups to be cost effective.

Reciprocity is inevitable if one country deems another of engaging in unfair or discriminatory trade practices. In response to the solar cells case, China has initiated an antidumping and countervailing duty case against the US for $2 billion worth of US-produced polysilicon that goes into Chinese solar cells, which are exported to the US. In a trade war, nobody wins.

How can we avoid going down the path of protectionism and possibly trigger a trade war with our most important trade partner?  Congress should re-write US trade laws to insure more balance and fairness to replace the current laws that strongly favor one set of US companies over others. A key issue in the near future is making China a market economy country. If China becomes a market economy, the Commerce Department will have to use actual costs and prices in China to calculate dumping rates.

But there will be resistance, to be sure, from those domestic companies who will fight any changes in the current system that maintains their competitive advantage. They are well equipped in the lobbying business given the coalitions formed to promote their interests on Capitol Hill and before government agencies. The importing companies must likewise collaborate to more effectively get their side of the story to the decision-makers to insure that the effects of prescribed duties on US importers are properly considered.”

TRADE—SOLAR CELLS

On March 19th before the Senate Finance Committee Subcommittee on Trade, Sen. Ron Wyden (D-OR) urged Acting U.S. Trade Representative Demetrios Marantis to consider a “global solution” to what he said was the “uncertainty” in the solar industry caused by trade remedy cases that U.S. manufacturers filed in 2011 to protect themselves against dumped and subsidized solar cells from China.

The irony is that Senator Wyden was one of the most visible proponents when Solar World filed its antidumping and countervailing duty case in the Fall of 2011.  Apparently the antidumping and countervailing duty orders have not worked.  U.S. manufacturers, such as SolarWorld, have told administration officials that the trade remedy orders now in place in the U.S. have not been that effective in raising prices in the U.S. market.  One company stated that prices have only gone up between five and 10 percent.

Obviously, the major reason is the Solar Cells loophole.  If the solar cells are produced in third countries and put in modules and panels in China, the modules and panels are outside of the antidumping and countervailing duty order.  But the volume of imports of solar panels into the United States has gone down compared to last year, as some of the smaller Chinese manufacturers have been forced out of the US market.  Prices, however, remain too low probably because of other economic factors, such as grid parity and the falling price of natural gas.

As stated on January 1, 2013 in Renewable Energy World, http://www.renewableenergyworld.com/rea/news/article/2013/01/the-solar-outlook-for-2013, most experts predict little impact from the US Solar Cells Antidumping and Countervailing Duty Orders Against China:

“The recently published U.S. Solar Market Insight Report, which was released by the Solar Energy Industries Association (SEIA) and GTM Research, states that the impact of tariffs imposed against Chinese solar manufacturer providers will be minimal, as they only apply to panels using Chinese manufactured solar cells – something that can be easily circumvented.

According to Shah, Chinese solar manufacturers will be virtually unaffected by the tariffs because of a pre-existing diversity in their solar product lines. “Today, the Chinese already diversify by using Taiwanese cells,” Shah explained, “so they’re just sending those Taiwanese cell modules to the U.S. instead.”

The SEIA report claims that “tariffs will not have a material impact on pricing in the U.S.” and goes on to explain that Taiwanese-obtained solar cells will come with a cost impact of less than $0.10 per watt.”  That equates to $3.00 usd per solar panel.  It does not change the product selling price at all.”

To have a truly global solution, however, in all probability the U.S., European Union, and China would have to be included and the agreement would have to include the polysilicon producers.  Wyden stated:

“I think it’s fair to say there’s a fair amount of market uncertainty now with respect to renewable energy, and particularly solar.  It seems to me there could be some real value in the United States looking to put together what I’ve essentially called … a kind of global resolution.”

This type of agreement has been discussed in the past, and industry sources, such as polysilicon producer, Dow Corning have stated that such an agreement would benefit the solar industry as a whole.  But although there is still time for an agreement in Europe, such an agreement would be more difficult in the US.  Formal “suspension” agreements pursuant to the antidumping and the countervailing duty law must be negotiated before antidumping and countervailing duty orders are issued so that the investigations can be suspended.

To date the Administration, including Acting USTR Marantis have been non-committal.  But with Congress involved, anything is possible.  At the hearing, Wyden stated that the U.S. should lead the way in settlement talks. “I think the United States ought to be leading those kinds of discussions. . . .”

In other words, for all the bluster and speeches, the US Solar Cell Trade War has not increased the price of solar cells in the United States by any significant amount; $3 a solar panel is not a significant impact.  But the Solar Cells case has smashed US importers and hurt US exporters of US produced polysilicon that goes into the Chinese solar cells.  One of the major problems with US antidumping and countervailing duty cases is that they do not work.  They do not help the US industry.  The major losers in a US China Trade War are US importers and US exporters.

US RESPONSE TO CHINA WTO SUBSIDY CASE

Attached is the US government’s March 15, 2013 response in the WTO to the Chinese government’s case against US Countervailing Duty cases against China.  US GOVT CVD RESPONSE

PATENTS

SOLAR POWERED GARDEN LIGHTS

Attached are just some of the March 27, 2013 complaints filed by Simon Nicholas Richmond against numerous Chinese companies and US retailers for patent infringement for imports of solar powered garden lights.  Some of the respondents are: Lumisol Electrical Ltd, Ningbo Hangshun Electrical Co. Ltd, Ethan Electronic Appliances (Ningbo” Co., Ltd., Robert Kang, Costco, Pine Top Sales, Quanzhou Bright Solar Energy Co., Ltd, Jeeyee Solar Energy Intl Development Co, True Value, Forever Gifts Texas and China, Daintilly, Liqiao Electronic Equipment, HSIN, HSN General Partner, HSN, Winchance Solar Fujian Technology, Co., LAR Fujian Technology, Coleman Cable, NII Northern International, The Home Depot, Kmart, Unbeatable Sale, Amazon, Wayfair, Menard, Plumber Surplus, Jiawei North America, Shenzhen Jiawei, Caremark, ACE Hardware, Target, Creative, Arrett Sales, Do It Best, Outsourcing in Asia, Bed Bath & Beyond, Cien Luen Industries, King of Fans and Lowe’s, Sears, Smart Solar and Import Specialties.  GARDEN LIGHTS 2 GARDEN LIGHTS 3 GARDEN LIGHTS 4 GARDEN LIGHTS 5 GARDEN LIGHTS 3272013

TRACTORS

On March 20, 2013 Briggs & Stratton Corporation filed a patent complaint against imports of Raven Tractors against Chongqing RATO Power Co., Ltd., RATO North America, and Denver Global Products, Inc.  See attached complaint.  BRIGGS STRATTON 3202013

ANTITRUST

US VITAMIN C ANTITRUST CASE

I was recently quoted in the attached Chinese Sina article in http://finance.sina.com.cn/column/international/20130319/101414877509.shtml SINA VITAMIN C ARTICLE about the Vitamin C antitrust case and in the attached article in Caijing Magazine VITAMIN C CAIJING ARTICLE.

The most recent news on the Vitamin C case is that Weisheng Pharmaceutical Company Ltd. and its parent, China Pharmaceutical Group Ltd., agreed to pay $22.5 million and comply with any injunction issued against any co-defendant to  settle price-fixing claims for vitamin C after dropping out of a class-action trial in New York federal court that walloped their co-defendants with a $54.1 million penalty, which tripled became $162 million.  Attached is a copy of the settlement agreement.  VITAMIN C SETTLEMENT

According to the Agreement, Weisheng and CPG will pay $20 million into an escrow account for the direct purchaser damages class within 40 days of the agreement’s execution, and the remaining $2.5 million within 365 days of the agreement’s final approval. They also will accept the terms of any injunction entered against a nonsettling defendant.

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

Best regards,

Bill Perry

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