“TRADE IS A TWO WAY STREET”
“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”
PRESIDENT RONALD REAGAN, JUNE 28, 1986
US CHINA TRADE WAR NEWSLETTER—MAY 6, 2014
Dear Friends,
There have been major developments in the trade, solar cells, US/Chinese antitrust, and securities areas.
REASON FOR THIS NEWSLETTER
Some readers have commented that this newsletter is too long and should be broken up into separate parts. I disagree. Although separate sections are clearly marked so that readers can review the section of interest, this newsletter and my blog will cover all the different legal areas, because these different legal areas are interrelated. The evidence is that we have a trade war and Chinese government officials look at all the legal areas as a whole not in small parts.
Many US lawyers and government officials have been able to downplay the interrelationship of the various trade issues by saying, “This is an antidumping/trade issue or this is an antitrust/competition issue.”
The problem is that many Chinese government and corporate officials do not view the overall trade relationship with the United States in neat separate legal boxes. The Chinese look at the relationship overall, and this newsletter started up because when one follows the situation it is obvious that the trade war is spreading into many different legal areas. As one Chinese antitrust lawyer told me, the Chinese look at their antitrust/antimonopoly law as a “weapon” in the trade war. One only has to look at the article below by Peter Corne on the “Dawn Raids” under Chinese antitrust law to see how serious the situation is.
The Commerce Department’s decision over the last 30 years to use bogus surrogate values to create a fake cost of production to wipe out billions of dollars in Chinese imported products from the United States is not fair or just and has goaded the Chinese government into responding. The Chinese Government understands that the only issue that the US Government respects is political power. So if the US can twist its trade law for industrial policy and protectionist purposes, the Chinese can twist their trade, antitrust and other laws for industrial policy and protectionist purposes. What goes around does indeed come around.
More importantly, many Americans simply do not understand the importance of the Chinese market to many US companies. At a recent speech in Washington DC, one high level US government official told me that the Chinese had to be attracted to the US market because it was so much bigger than the Chinese market. The times they are a changing.
As an example, on May 3, 2014, in the attached article in the Minneapolis Star Tribune Medtech Industry Is Booming in China about the importance of the Chinese medical market to Minnesota medical device producers, the reporter states:
“Med-tech industry is booming in China . . .
A Chinese market for medical technology used to be on the long list of lofty goals for devicemakers like Medtronic. Now U.S. medtech firms are seeing double-digit growth as they partner with Chinese manufacturers, purchase Chinese companies and race to educate and woo Chinese doctors and patients eager to tap the latest technology.
A growing Chinese middle class and increasing investment in health care by the Chinese government are making such devices as pacemakers, defibrillators, insulin pumps and spine products accessible to hundreds of millions of new patients.
More-familiar factors play a role, too, as the nation falls prey to such chronic ailments as heart disease and diabetes, meaning even more customers will lean on technology from U.S. devicemakers to prolong and improve their lives.
Fridley-based Medtronic, for one, is banking on this. China is the linchpin in Medtronic CEO Omar Ishrak’s emphasis on building business in emerging markets. Medtronic’s China revenues have shot from $50 million a decade ago to $800 million today.
“China is clearly a unique opportunity and one of four regions around the world we’re targeting for expansion,” Ishrak said at Medtronic’s 2013 annual shareholders meeting. China — growing at 15 to 20 percent a year — now accounts for 40 percent of Medtronic’s emerging-market revenue. Emerging markets make up 10 percent of all Medtronic business.
“You’re talking about more than 1 billion people who need care,” Ishrak said more recently, referring to China and India.
“With globalization, the key to sustainable growth in emerging markets will be addressing the barriers of access to lifesaving medical technology.”
The burgeoning Chinese middle class is estimated to number more than 400 million people — larger than the entire population of the United States. That middle class is demanding better access to health care, and the Chinese government has responded by pledging to spend $125 million over the next three years, promising that all citizens will have access to basic health care by 2020. . . .”
The size of the Chinese market gives the Chinese government leverage in trade talks with the US. As indicated below, 49% of Qualcomm’s $24.9 billion in sales came from China during 2013.
TRADE
POLICING CUSTOMS/ANTIDUMPING VIOLATIONS
What happens when a Chinese exporter/producer with a low antidumping rate it obtained from the Commerce Department or a US importer that is playing by the rules see that other Chinese companies or US importers are not playing by the rules and are transshipping merchandise through Malaysia, for example, or playing other trade games to evade US trade and customs laws? In that situation, a US importer or Chinese exporter has several options to stop Chinese companies and US Importers using an illegal and unfair advantage to evade an Antidumping Order using transshipment or some other false statement to US Customs and Border Protection (“CBP”).
Each one of these offensive options will require as much evidence as the Chinese exporter/producer or US importer can assemble to go forward with that step. Each step will also depend upon how much legal fees the company is willing to pay. The bigger the project the more the fees, but also the possibility of a large reward.
The first option is to simply gather as much evidence as the company has about the Chinese companies and the importers that are involved. The lawyer then can put the evidence together and contact the lawyers for the Petitioners in the Antidumping Case in question to pass the information on so that they can contact US Customs. This is the least expensive option, but once the evidence is given to the Petitioners it is gone. The Chinese company or the US importer gets nothing and there is very little chance that it will ever learn what has happened in any investigation.
The second option is to gather the evidence and file an e-allegation at Customs. The lawyers prepare a submission based on the company’s evidence and other evidence that is gathered from the internet and elsewhere. In the Submission, the lawyers describe to Customs what they know and then they lay back and see what happens.
In conjunction with the second option, the lawyers may also want to file a claim for compensation to Customs under 19 USC 1619 and 19 CFR 161.12. There is a cap on recovery, however, of $250,000.
Keep in mind, however, that the problem with the first two options is that the company may not know whether Customs does anything or not. Customs considers investigations, such as transshipment investigations of importers, to be confidential because they could lead to criminal proceedings. Therefore, Customs is very reluctant to tell the informant anything. In conjunction with the company’s e-allegation, the company can meet with Customs and tell them about their concerns, but Customs will keep its mouths closed.
The third option, which is more expensive, is to mount an investigation of the Chinese and Malaysian companies and US importers, using private detectives, to gather evidence. This investigation then leads to a filing under the False Claims Act as a relator under Seal in the Federal District Court under 31 USC 3729 and 3730. The remedy in a False Claim Act is triple damages plus attorney’s fees and the relator is entitled to 15 to 30% of any recovery by the US Government. Based on the complaint, the US government will initiate an investigation of the Customs violations.
Attached is a Stipulation filed on April 21, 2014 in the case of Protective electronics case maker Otter Products LLC, Stipulation, which has just paid $4.3 million to settle a former employee’s allegations that it violated the False Claims Act and the Tariff Act of 1930 by knowingly underpaying customs duties owed to Customs. As the relator, the former employee is entitled to 15 to 30% of any recovery plus attorney’s fees, which probably means that the employee will get about $1 million. Not bad.
But False Claims Act cases require evidence and can be difficult to win in the Antidumping context, because the US government must prove that the importer knew that the imports in question were really coming from China.
But in False Claims Act cases, since the relator is a party to the litigation, the Justice Department and Customs may reveal a little more information about the issues and problems that they are facing in the investigation itself. If the Justice Department decides to move forward, they will often issue Civil Investigative Demands/Subpoenas so the importers will be under a lot of legal pressure in the case. Imports from the target country can slow down and stop as importers became scared of potential liability, including criminal liability.
Because the legal fees can be high in an FCA case, for a small importer or Chinese exporter, it will be important to look for allies, other importers or foreign producers/exporters that are facing competition from the illegal imports. When you have several companies in a Coalition with common concerns, the legal fees are much lower and the other companies can help gather more evidence and information increasing the chance that Customs will stop the imports and that damages can be recovered.
In the late 1980s, I published an article on the High Cost of Customs Fraud, which goes into more details on these points. See Perry Article.
TRADE ADJUSTMENT ASSISTANCE FOR FIRMS – THE FORGOTTEN SUCCESSFUL TRADE PROGRAM
As mentioned in my last newsletter, 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 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. In the polyethylene shopping bags case, one US importer moved a substantial amount of supply from China to India, Sri Lanka and other countries. 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.
If antidumping and other trade tariffs do not work, what does work? Some point to trade adjustment assistance for employees, a one billion dollar program that helps workers that have been displaced by imports. The problem is the jobs have already been lost. The training is often for jobs that do not exist.
There is another, little known, less costly alternative that saves jobs before they go down the drain—the Trade Adjustment Assistance for Firms program. This program has a proven track record for directly helping US companies that have been injured by imports before there is a massive lay-off or closure, yet it does not 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
Although at first glance, free market advocates would not support this program, TAA for Firms works. I am on the Board of Directors of the Northwest Trade Adjustment Assistance Center (“NWTAAC”), one of eleven regional centers with an annual budget of about a million dollars. NWTAAC, however, 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 attached to my last post, 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. This is much more efficient and cost effective than TAA for Workers. The Federal government saves money because 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.
The recovery strategies are also imaginative. A hydroelectric dam was designed for a sheep rancher, who built the dam with his own money and now receives six figure payments per year from electricity sold to supplement his cash flow from his sheep operations.
To qualify for TAA for Firms, the company has to show a five percent decline in sales or production and a five percent decline in employment, compared to the same period one year earlier. This is a much lower standard than for a large trade case, which requires an entire U.S. industry to show material injury or serious injury. Even if sales are up, if a single product line which comprises 25 percent or more of total sales has declined, that will also qualify the company.
Once the DOC approves the firm’s petition, the Trade Adjustment Assistance Center analyzes the strengths and weaknesses of the company. The Center then, working closely with the company, helps it develop a recovery strategy to compete with the imports. When this strategy is approved by the Commerce Department, experts are hired to implement the strategy. The amount of federal assistance is limited to $75,000, which the company must match, but it is the strategic planning and access to the industry experts that helps the company adjust to the import competition at the company level. The Center then monitors the progress of these consultant projects until completed. This helps to ensure success and is one of the few government programs that does monitor the progress. Although the program cannot purchase “hard assets” for the company nor can it give cash to the company, because of the industry experts that can be used to turn a company around, the program has had a tremendous success rate.
Thus, an aluminum smelter used the program to translate its website into eight different languages. In response to increased imports from Norway and Chile, with the help of the program a salmon fisherman, is now providing eco-tours, and another salmon fisherman has developed labels that are in compliance with the marketing and health requirements for the new export markets for their canned salmon. A wire harness manufacturer also received lean manufacturing design and implementation resulting in increased productivity, increased sales and profit, as well as, recovery of all lost jobs due to imports.
These companies are around today because they have learned, with the help of a Federal program, to deal with globalization and not just to run and hide behind protective trade measures.
In 1984, the Reagan Administration appointed Jim Munn to head up the Northwest Trade Adjustment Assistance Center, probably with the purpose of closing it, and the entire program down. The Reagan Administration was dead set against government involvement in the marketplace. Jim Munn, however, discovered unexpectedly that the program worked and instead of killing it, stayed on to head up NWTAAC for 22 years.
Although free market ideology is important, when a program works it should not be ignored, it should be given the resources it needs to prosper and flourish. While this will not work for every US industry, US businessmen might be well-advised to find the entrepreneurial advice they need to stay in business from the TAA program rather than reaching for a trade lawyer to solve the problem. Most U.S. companies simply need a little guidance to be successful in the international marketplace.
For my letter to the Wall Street Journal on the TAAF program, see attached. FEBRUARY242011TAACLETTERWSJ – Perry
TRADE NEGOTIATIONS—TPA, TPP, TTIP/TA AND BALI/DOHA ROUND
As mentioned in past posts, 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.
As mentioned, in my February post, 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, the Bipartisan Congressional Trade Priorities Act of 2014, which is posted in my February post on this blog, 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.
Now the story continues . . . .
On April 10, 2014, ranking Democrat Sander Levin of Michigan spoke about the TPA and the TPP at the Center for American Progress. In that speech Representative Levin stated:
“No matter where you stand in the debate over trade and globalization all should agree that the status quo is unacceptable. The status quo is low tariffs in our market with imports – often traded unfairly – causing job loss and contributing to income inequality. The status quo is markets closed to U.S. goods and services through tariffs and non-tariff barriers and currency imbalances contributing to huge trade deficits. To make matters worse, many of our trading partners today are negotiating preferential trade agreements with one another that do not include the United States. That means that our exporters could face higher tariffs in those countries than other countries’ exporters. And, the status quo is exemplified by the Rana Plaza disaster in Bangladesh where workers with no rights in the workplace sacrificed their lives on the job.
TPP provides us with an important opportunity to change the status quo and to improve the way the global economy works. If done right, TPP can help level the playing field, to better ensure two-way trade, strengthen the rules of competition, and reflect our values.
The TPP opportunities are real. For example, U.S. dairy producers see an opportunity to remove Canadian tariffs in the range of 250 to 300%, and non-tariff barriers, which have survived two previous U.S.-Canada trade agreements. U.S. auto producers see an opportunity to remove Malaysian tariffs of up to 35% and nontariff measures that significantly raise the cost of American cars sold there. . ..
There can only be one negotiator, but those negotiations must be built on a strong foundation with the Congress that has to approve the final product. With TPP negotiations too far along for Congress to set the initial terms or negotiating objectives, we must now join in a full partnership. …
We need a structure. We need responsibility, accountability, and ownership.
Because TPP addresses a broad range of policy areas, more Members of Congress must play a key role –and Congress as a whole must play a greater role – in TPP. We need to involve the Members of our committees with jurisdiction over trade, but also Members of other committees that have expertise with the issues under negotiations, and other Members also have important roles to play. . . .
We all recognize that globalization is here to stay and that we can’t simply accept the status quo. The question is: what are we prepared to do about it? Are we going to stand on the sidelines and let the polarization too often endemic to trade debates prevail? Are we going to settle for the slogans that trade is bad or the broad brush rhetoric that more trade is always better?”
On April 28, 2014, it was reported that in the mid-term campaigns Democrats are arguing that if the Senate becomes Republican an all Republican-controlled Congress along with compliant President Barack Obama will mean the Trade Agreements will pass. In effect, Democratic candidates argue that they should stay in power to keep the country protectionist and to prevent President Obama from giving away the store on key policy issues, including trade.
Rep. Gary Peters, a Democrat running for Senate in Michigan, reportedly is openly campaigning against the president’s free-trade agenda. Peters argues:
“If a Republican Congress establishes a goal of working with the president on trade, it will certainly facilitate” passing fast-track trade authority”
On April 30, 2014, Chairman Camp of the House Ways and Means Committee stated:
“We also have opportunities to pursue new trade agreements . . .Trade Promotion Authority is an important tool to moving these agreements forward, and yet, here again, we have seen little to no action from the Administration on the Hill. The Administration must actively engage with Congress on TPA so we can move these job-creating agreements forward.”
On May 1, 2014, the Senate Finance Committee held a major hearing. A video of the hearing can be found on the internet at http://www.finance.senate.gov/hearings/hearing/?id=3064b778-5056-a032-523b-0d5505711ac5.
Statements by Democratic Chairman Senator Wyden and Republican ranking member Senator Orrin Hatch along with the testimony of USTR Froman are attached below. Senator Wyden stated in part in his attached opening statement WydenTradeHearingStmt :
“For decades ,American trade policy has been a story of adaptation and change. In particular, the extraordinary economic changes of the last generation demonstrate how important it is that future trade policies are reformed to reflect the times. . . .
over the previous decade,currency manipulation has reemerged as a major concern for the U.S. economy. China made commitments to follow global trade rules when it joined the World Trade Organization in 2000. But when it comes to currency,as in so many other areas, China is keeping a finger firmly planted on the scale and undermining those commitments. Pick a product manufactured in China and imported to the U.S. –any product–and currency manipulation makes it artificially cheaper. That is hurting American workers’ ability to compete.
Finally, unlike 20 years ago, Americans expect to easily find online the information they want on key issues like trade. Yet too often, there is trade secrecy instead of trade transparency. It’s time to more fully inform Americans about trade negotiations and provide our people more opportunity to express their views on trade policy. Bringing the American people into full and open debates on trade agreements that have the effect of law is not too much to ask. . . .
Here’s my bottom line. The new breed of trade challenges spawned over the last generation must be addressed in imaginative new policies and locked into enforceable, ambitious, job-generating trade agreements.They must reflect the need for a free and open Internet, strong labor rights and environmental protections. Nations don’t dismantle protectionist barriers or adopt these rules on their own. They do so with reciprocal agreements hammered out through negotiation. America must establish new rules to reflect today’s trade norms and enforce them.”
Other than more transparency, however, Senator Wyden did not spell out the details of his new Smart Track initiative.
Republican Senator Orrin Hatch stated in part in his attached opening statement 5.01.14 Hatch Opening Statement on Administration’s Tradey Policy Agenda:
“President Obama’s trade agenda is extremely ambitious. If it succeeds,it will help shape global trade patterns for decades to come. If it fails, it will result in billions of dollars of missed economic opportunity for American workers and job-creators.
Of course, the President’s term is not yet over and the jury is still very much out. Even so, I am concerned.
First and foremost, the fact that Trade Promotion Authority, or TPA, is not renewed creates a serious,and perhaps fatal, flaw in the President’s trade agenda. I do not believe you can conclude high-standard agreements that will meet Congress’ approval without TPA. And, I am not the only one who holds this view. . . .
Ambassador Froman, I have no doubt in your capabilities or those of your staff, but history tells us very clearly that, without TPA, your trade agenda will almost certainly fail. That is why I am very disappointed in the President’s passive approach on this issue.
I am sure you can remember the enormous political effort President Clinton put into successful implementation of the North American Free Trade Agreement. And I am sure you can also recall President Bush’s total political commitment to renewing TPA in 2002. In those cases, war rooms were established and each cabinet secretary made Congressional approval of those initiatives a public priority.
Put simply, we are not seeing that level of commitment from President Obama, which is disappointing. And, without more effort on the part of the administration, I don’t think we can succeed. . . .”
USTR Froman stated in part in his attached opening statement FROMAN STATE:
“The Obama Administration has a strong record of success in promoting U.S. exports and creating jobs here at home. Over the past four years, U.S. exports have increased by nearly 50 percent – four times faster than our economy as a whole – reaching a record high of $2.3 trillion in 2013. In fact, a third of our total economic growth is attributed to this increase in U.S. exports.
Exports mean jobs. Each $1 billion in exports supports 5,400-5,900 U.S. jobs. U.S. exports have supported 1.6 million additional private sector jobs since 2009 – that means a total 11.3 million Americans now owe their jobs to exports, and those jobs pay 13-18 percent more on average than non-export related jobs. . . .
As we pursue this agenda, we will continue to consult with Congress and seek input from a wide range of advisors, stakeholders, and the public at large. We have held over 1,250 meetings with Congress about TPP alone – and that doesn’t include the meetings we’ve had on T-TIP, TPA, AGOA, and other initiatives. Our Congressional partners preview our proposals and give us critical feedback every step of the way. We also ensure that any Member of Congress who is interested has access to the negotiating text and the opportunity to receive detailed briefings by our negotiators.
Further, we have cast a wide net to draw in the views of stakeholders and the public more generally, and to share information with them. We have solicited public comments regarding negotiating aims and objectives through notices in the Federal Register; public hearings; open invitations to stakeholders to meet with U.S. and foreign negotiators at negotiating rounds; the dissemination of trade policy updates through press releases, fact sheets, blog posts, statements on USTR’s website – and, yes, tweets; and direct and constant outreach by U.S. trade officials to solicit, obtain, and incorporate public input in the course of their daily work. Most recently, we published detailed goals and objectives for T-TIP negotiations that outline what we are seeking in every chapter of the agreement. . . .
Finally, let me say a word about Trade Promotion Authority (TPA). TPA is the mechanism by which Congress has worked with Presidents since 1974 to give the Executive its marching orders about what to negotiate, how to work with Congress before and during the negotiations, and how Congress will take up and approve or disapprove the final agreement. There is no other area of policy that reflects closer coordination between the Executive branch and Congress than trade policy.
The last TPA legislation was passed over a decade ago. Much has changed since that time, from the May 10, 2007 agreement on labor, environment, innovation, and access to medicines to the rise of the digital economy and the increasing role of SOEs. We agree with the broad group of stakeholders that these issues should be reflected in a new TPA bill.
Issues raised by the emergence of the digital economy and the increasing role of SOEs in the global economy should be part of the statutory negotiating objectives. And there are new forms of protectionism which threaten U.S. exports, which should be reflected as well.
We have heard from many that TPA needs to be updated. We agree. The Administration welcomed the introduction of bipartisan TPA legislation in January, and looks forward to working with this Committee and Congress as a whole to secure TPA that has as broad bipartisan support as possible. We also look forward to renewing Trade Adjustment Assistance (TAA), which helps provide American workers with the skills to compete in the 21st century. “
During the May 1st hearing, Senator Chuck Schumer made it very clear that without agreement to curtail currency manipulation in the TPP, he and many others in Congress will not approve the TPP Agreement. In response to a question from Senator Schumer, USTR Froman stated that currency manipulation has not been discussed yet in the TPP. Senator Stabenow in a follow up stated that 60 Senators and over 200 Representatives in the House have sent letters to President Obama stating that currency manipulation must be addressed in the TPP.
MAY ANTIDUMPING ADMINISTRATIVE REVIEWS
On May 1, 2014, Commerce published in the attached Federal Register notice REVIEW REQUESTS regarding antidumping and countervailing duty cases for which reviews can be requested in the month of May. The specific antidumping and countervailing duty cases against China are: Aluminum Extrusions, Circular Welded Carbon Quality Steel Line Pipe, Citric Acid and Certain Citrate Salts, Iron Construction Castings, Oil Country Tubular Goods (“OCTG”), Pure Magnesium, and Stilbenic Optical Brightening Agents.
For those US import companies that imported aluminum extrusions, including curtain walls and other products, citric acid, OCTG and the other products listed above from China during the period May 1, 2013-April 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 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 Administrative Review, their antidumping and countervailing duty rate could well go to the highest level and for certain imports the US importer will be retroactively liable for the difference plus interest.
In my experience, many US importers do not realize the significance of the administrative review investigations. They think the antidumping and countervailing duty case is over because the initial investigation is over. Many importers are blindsided because their Chinese supplier did not respond in the administrative review, and the US importers find themselves liable for millions of dollars in retroactive liability.
In the recent final determination in the Wood Flooring Case, for example, although the rates were very low for many Chinese exporters, only 5%, 20 Chinese exporters had their rates go to 58% because they did not participate in the review investigation and did not file a no shipment certification, separate rate application or separate rate certification at the Commerce Department.
SOLAR CELLS/SOLAR PRODUCTS FROM CHINA ANTIDUMPING AND COUNTERVAILING DUTY CASES
In April seven US Senators from Montana, Washington State and other States sent the attached letter SENATORS SOLAR LETTER to Vice President Biden asking for help in settling the Solar Cells and Solar Products antidumping and countervailing duty cases against China. In that letter, the Senators state:
“Thank you for your on-going efforts to support the growing solar industry in the United States. We appreciated your willingness to bring the solar trade dispute to the attention of Chinese leaders during your visit to China late last year.
We write because the dispute with China over solar goods continues to escalate, and we believe your leadership is critical to resolving the current situation. China continues to demonstrate an unwillingness to settle the dispute until our domestic solar industry presents unified proposals that remove existing trade restrictions. Therefore, in order to align the domestic solar industry, we ask you to bring folks together to develop a negotiated settlement that will lead to growth in all aspects of the solar industry. The full support of the White House is needed to lay the groundwork for a long-term settlement with China.
Earlier this year, the Department of Commerce commenced another round of antidumping investigations into Chinese solar panels, which will likely lead to additional tariffs and further retaliations from the Chinese. Continuing to let this dispute play out one case at a time will limit job growth and it may even lead to job loss.
The solar industry is experiencing remarkable growth. In fact, the industry employed over 140,000 workers last year, a 20 percent increase from the previous year. We want to see all areas of the industry continue to create high-paying jobs for Americans. From panel sales and installation to panel and component manufacturing, growth in the solar industry is an outstanding opportunity to create high-paying jobs and to enhance our energy security. That is why it is critical that the administration engage with all U.S. stakeholders to resolve this trade dispute as quickly as possible.”
As mentioned by the Senators, Solar World and the US Solar Cell producers are battling installers and developers and other solar cells/products users and the US producers of Polysilicon in Washington, Montana and other states, who are being wiped out of China by Chinese antidumping and countervailing duty cases.
There have been efforts to negotiate a settlement with the Chinese government, but to date each effort has failed. The problem is that in contrast to the EU, Canada and China, for example, there is no public interest test in US antidumping and countervailing duty law. Thus, the U.S. government cannot legally compel SolarWorld to accept the Agreement. In fact, the petitioner, SolarWorld, would ultimately have to agree to any settlement agreement reached between the U.S. and China.
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 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.
Two Congressmen have now agreed to meet importers in the New Jersey/NY area and in the Long Beach area to listen to their grievances regarding the US antidumping and countervailing duty laws. We are now contacting many US importers and also Chinese companies to ask them to contact their US import companies to see if they are 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.
THE HYPOCRISY OF US PRISON LABOR ALLEGATION REDUX
In my last post, I reported that at a recent Housewares Show in Chicago, the Program Manager of the Business Development Group of the US Justice Department’s Federal Bureau of Prisons was going booth to booth saying that the prison factories run by the Justice Department’s Bureau of Prisons in the United States could match any Chinese price with US prison labor.
Apparently, some US producers have taken the bait. It has been reported that Don Finkell, one of the persons behind the Woodflooring from China antidumping and countervailing cases, WOODFLOORING PRISON LABOR has come out of retirement to reenter the wood flooring business. Finkell has a new company, American OEM Wood Floors, and he sees an opportunity in the growing private-label business that has been dominated by Chinese companies. “What we’re talking about doing is to give an alternative to private-label programs that is domestically produced.” Finkell plans to use a model that he is familiar with: prison labor. The company has leased a former prison furniture factory in Only, Tenn., from the state of Tennessee, and plans to use what is referred to in the state as “offender labor,” as well as civilian workers. This marks the eighth and most sophisticated prison plan Finkell has created.
Slave/Prison labor is acceptable if it is used to compete against Chinese imports and the US industry.
FDA—FOOD PROBLEMS
WASHINGTON/PACIFIC COAST SHELLFISH BANNED FROM CHINA
With regards to the Chinese ban on shellfish from the West Coast, the latest report is that the Chinese government will not lift the ban until government officials have implemented testing for inorganic arsenic in geoducks from Washington and the rest of the Northwest.
PATENT/IP AND 337 CASES
NEW PATENT AND TRADEMARK CASES AGAINST CHINESE COMPANIES, INCLUDING ZTE
On April 14, 2014, Borden Co. (PTE) Ltd., a Singapore company, and Anhing Corporation, a California company, filed a trademark infringement and counterfeiting case against Grandway Enterprises, a Nevada corporation, and Hing Yip, a Chinese company. HING YIP
On April 15, 2014, Long Corner Consumer Electronics LLC filed a patent infringement case against ZTE (USA) Inc. ZTE LONG
On April 22, 2014, BLK DNM Group. LLC filed a trademark infringement case against Sweetyet Development Ltd., a Hong Kong company. SWEETYET HK CHINA
On April 23, 2014, Vstream Technologies LLC filed a patent infringement case against ZTE and other high tech companies. VSTREAM ZTE COMPLAINT
On April 25, 2014, Thomas & Betts International LLC and Thomas & Betts Corp. filed a trademark infringement and unfair trade practices case against Burndy LLC, Hubbell Inc., 3M Co., and Zhejiang Shangyu City Fengfan Electrical Fittings Co., Ltd. THOMAS BETTS ZHEJIANG
On April 28, 2014, Cyber Acoustics LLC and Cyber Acoustics HK Ltd., a Hong Kong corporation, filed a trademark infringement and false designation of origin against Shenzhen Fenda Technology Co., a Chinese corporation.SHENZHEN FENDA
On May 1, 2014, a patent infringement case was filed by Cordelia Lighting, Inc. against Zhejiang Yankon Group Co., Ltd. d/b/a Energetic Lighting, a China company, and Yankon Industries Inc., a California corporation. CORDELA YANKON
BANKING
On April 29, 2014, the US Justice Department filed the attached money laundering complaint against Shanghai Pudong Development Bank and the Bank of China seeking the forfeiture of certain funds as property involved in money laundering and as proceeds of violations of the United States sanctions laws and regulations and of the United States laws against wire fraud and bank fraud. CHINA MONEY LAUNDERING COMPLAINT According to the US Government, the claims arise out of a scheme by a Chinese national to evade US export laws and commit fraud and money laundering by supplying various metallurgical goods and related components to Iran.
ANTITRUST
REHEARING EN BANC—LCDS CASE
On April 24, 2014, the US Justice Department and the Federal Trade Commission (FTC) asked the Seventh Circuit for a rehearing en banc to reconsider a ruling blocking Motorola liquid crystal display price-fixing claims, saying the decision threatens the government’s enforcement efforts related to foreign cartels.
The DOJ and the FTC argued that the panel’s decision undermined the government’s ability to prosecute cartels that harm consumers that increasingly deal with foreign-made components.
In March, the 7th Circuit ruled that the Foreign Trade Antitrust Improvements Act barred Motorola from seeking damages from Samsung Electronics Co. Ltd., LG Display Co. Ltd. and other LCD makers for panels sold to the company’s foreign subsidiaries, which were incorporated into mobile devices Motorola eventually sold in the U.S.
In their attached amicus brief ftc doj ftaia brief, the DOJ and the FTC argue that the panel erred in concluding that the FTAIA banned claims based on the price-fixing of a component sold abroad because that sale did not have a direct effect on U.S. commerce. Under the FTAIA, anti-competitive conduct must have a “direct, substantial and reasonably foreseeable effect” on U.S. domestic or import commerce to support a damages claim.
The Justice Department and FTC argue :
“The United States and the Federal Trade Commission enforce the federal antitrust laws and have a strong interest in the correct interpretation of the Foreign Trade Antitrust Improvements Act of 1982 (FTAIA), which added Section 6a to the Sherman Act, 15 U.S.C. § 6a. Section 6a makes the Sherman Act’s other sections inapplicable to conduct involving export or wholly foreign commerce except when that conduct (i) has a “direct, substantial, and reasonably foreseeable effect” on certain U.S. commerce and (ii) that effect “gives rise to a claim.”. . . .
STATEMENT OF ISSUES
1. Whether the panel erred in holding that fixing the price of a component sold abroad cannot have a direct effect on U.S. domestic or import commerce in products incorporating the component.
2. Whether the panel erred in holding that such an effect cannot give rise to an antitrust claim in the United States.
STATEMENT
This case involves a global conspiracy to fix the price of LCD panels incorporated into cellphones and other popular consumer devices. . . . The panel held that Section 6a precludes any antitrust claims for price fixing of products sold abroad, no matter how massively and predictably U.S. consumers were harmed. The panel decision should be vacated. . . .
Congress enacted the Foreign Trade Antitrust Improvements Act of 1982, which added Section 6a to the Sherman Act, with the express purpose to “increase United States exports of products and services,” . . . .Section 6a “seeks to make clear to American exporters (and to firms doing business abroad) that the Sherman Act does not prevent them from entering into business arrangements . . . however anticompetitive, as long as those arrangements adversely affect only foreign markets.” . .. Congress also sought to ensure that purchasers in the United States remained fully protected by the federal antitrust laws. Accordingly, conduct involving “[i]mport trade and commerce are excluded at the outset from the coverage of the FTAIA in the same way that domestic interstate commerce is excluded.” . . . And the FTAIA leaves conduct involving export or wholly foreign commerce inside the Sherman Act’s reach when “the conduct both (1) sufficiently affects American commerce, i.e., it has a ‘direct, substantial, and reasonably foreseeable effect’ on American domestic, import or (certain) export commerce, and (2) has an effect of a kind that antitrust law considers harmful, i.e., the ‘effect’ must ‘giv[e] rise to a [Sherman Act] claim.’” . . . . Motorola Mobility Inc. (Motorola) filed suit against foreign makers of LCD panels in the Northern District of Illinois, alleging that defendants violated Section 1 of the Sherman Act by conspiring to fix the price of LCD panels world-wide from 1996 to 2006.
Motorola alleged that the conspiracy not only raised prices on LCD panels but also led to increased prices on cellphones and other products in which the panels were incorporated, many of which were “specifically destined for sale and use in the United States.” . . . .
Rehearing or rehearing en banc is necessary because the panel decision conflicts with Minn-Chem, Inc. v. Agrium, Inc. . . . and raises exceptionally important questions about the reach of the Sherman Act. The panel decision should be vacated because its resolution of these questions threatens the ability of government law enforcement and private actions to prevent and redress massive harm to U.S. consumers. . . .
In applying the effects exception, this Court has recognized that “domestic and foreign markets are interrelated and influence each other.” . . . Congress created the effects exception because it understood that conduct involving wholly foreign commerce can have significant anticompetitive effects on U.S. domestic or import commerce and wanted that conduct to remain subject to the Sherman Act’s protections. . . .
Applying these principles to the record, the conspiracy’s effect on U.S. commerce in cellphones is direct. The natural and probable consequence of increasing the price of a critical and substantial component like LCD panels is an increase in the price of cellphones. Nor does the effect become speculative or uncertain because it is “mediated” by Motorola’s decision on what price to charge for its cellphones. . . . There is evidence that the overcharges on the price-fixed panels have been passed on to cellphone purchasers in the United States. . . .
This is why the effect on U.S. commerce in cellphones is “doubtless” . . . . Unless vacated, the panel’s narrow view of the statutory term “direct” is likely to constrain the government’s ability to effectively prosecute cartels that substantially and intentionally harm U.S. commerce and consumers, as well as prevent those injured in the United States from redressing that harm. “Nothing is more common nowadays than for products imported to the United States to include components that the producers had bought from foreign manufacturers.” . . . Anticompetitive conduct involving those component purchases often causes significant harm in the downstream consumer markets. . . .
Lastly, the “practical” considerations cited by the panel, including the need to avoid “friction with many foreign countries,” . . . do not support its view that the Sherman Act cannot apply here. Congress “deliberately” phrased Section 6a to “include commerce that . . . was wholly foreign,” . . . leaving the Sherman Act applicable to conduct involving such commerce when it sufficiently affects U.S. domestic or import commerce. It has been well-established since Judge Hand’s opinion in United States v. Aluminum Co. of America. . . that “the Sherman Act applies to foreign conduct that was meant to produce and did in fact produce some substantial effect in the United States.” . . .
When enacting the FTAIA, Congress was thus fully aware that “America’s antitrust laws, when applied to foreign conduct, can interfere with a foreign nation’s ability independently to regulate its own commercial affairs,”. . . but nonetheless determined that application of those laws was reasonable when it redressed domestic harm, because of the United States’ interest in protecting U.S. consumers from anticompetitive conduct. . . .
Our “courts have long held that application of our antitrust laws to foreign anticompetitive conduct is nonetheless reasonable, and hence consistent with principles of prescriptive comity, insofar as they reflect a legislative effort to redress domestic antitrust injury that foreign anticompetitive conduct has caused.” . . . .
Indeed, the “extraterritorial application of antitrust laws on the basis of the effects doctrine is by now widely accepted” around the world. . . .
As this Court noted in Minn-Chem, it is important for our courts to protect U.S. consumers from foreign price-fixing conspiracies because the price fixers’ host countries “often have no incentive” to enforce their antitrust laws because they “would logically be pleased to reap economic rents from other countries” whose consumers ultimately bear the burden of the inflated prices. . . .”
EXTRADITION OF FOREIGN NATIONAL TO FACE CRIMINAL ANTITRUST CHARGES
On April 4, 2014, the Justice Department announced that it was successful for the first time in extraditing a foreign national to face charges related to a cartel, worldwide antitrust bid-rigging conspiracy related to marine hose sold in the United States.
On April 24, 2014, the Justice Department announced that after extradition from Germany the foreign executive was sentenced to two years in prison. DOJ MARINE HOSE
CHINA ANTITRUST CASES
Commentators have observed that governments are increasingly using antitrust and other regulatory powers for broader political and economic purposes and following the Commerce Department’s lead, the Chinese government is doing the same.
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 April 18, 2014, Peter Corne, head of Dorsey’s Shanghai office, published the attached article, china-a-new-dawn-in-anti-trust, about “Dawn Raids” by Chinese antitrust authorities. As Mr. Corne states:
“Chinese antitrust regulators have not historically been known to engage in aggressive investigations. Things may be beginning to change. Last year, both Qualcomm and IDC were put under the microscope by PRC National Development and Reform Commission (“NDRC”) officials using tactics more commonly associated with antitrust regulators in the United States and Europe. Here we will describe what happened.
Qualcomm experienced a classic “dawn raid” in November 2013, when NDRC’s special investigation squad swooped upon Qualcomm’s Shanghai and Beijing offices simultaneously, with little or no prior warning, in a seamless, well-orchestrated operation. NDRC officials reportedly seized electronic documents (including pricing and marketing information) and compelled management to provide detailed answers to questions about Qualcomm’s chip pricing and involvement in foreign anti-trust investigations. The NDRC has apparently had Qualcomm in its sights since receiving allegations that Qualcomm had engaged in excessive and discriminatory pricing and imposed unreasonable trade conditions on patent licenses and phone chip sales. Qualcomm could be considered particularly vulnerable to such allegations as it is generally assumed to be market-dominant in the wireless communication “standard essential patents” market.
IDC, in contrast, appeared insulated from such an investigation due to its lack of physical presence in China. But NDRC officials were not deterred. The NDRC filed a case in June 2013, alleging that IDC had abused its market dominance in the telecommunications industry by imposing excessive royalties, and invited IDC senior executives to China for “discussions.” IDC, to its credit, cooperated with the NDRC investigation, and in due course applied for a suspension to the investigation based on a series of voluntary commitments to refrain from charging excessive royalties, bundling essential patents, and requiring mandatory cross-licensing free of charge.
The new threat of aggressive antitrust enforcement is not limited to the NDRC, which is responsible for pricing-related issues. The State Administration for Industry and Commerce (“SAIC”) earlier in 2013 concluded what, to date, can only be described as the “mother” of Chinese anti-trust investigations against Tetrapak. The SAIC reportedly raided two offices of Tetrapak in Shanghai and Kunshan on the same day, 18 April, 2013. During the course of the Tetrapak investigation, the SAIC squad interviewed heads of departments and relevant employees and collected more than 30,000 emails, internal meeting minutes, numerous sales contracts, and other Tetrapak books and records. SAIC investigators even seized deleted emails, which provided the SAIC with important evidence to build its case against Tetrapak.
“Dawn raids” and similar aggressive investigatory tactics are no longer solely a Western phenomenon. They have now come to China and will increase in frequency over time. Companies should analyse whether or not they are at risk of investigation and take precautions through planning and training to ensure that they can respond appropriately when raids occur.”
The attached April Antitrust Report by TD & Associates, a Chinese law firm, TD Monthly Antitrust Report of April 2014, states that antitrust review of mergers by China’s Ministry of Commerce (“MOFCOM”) is slowing up mega international deals:
“China is becoming a big obstacle slowing down the process of global mega deals. Anti-trust experts said that since Chinese anti-monopoly enforcement authorities are comparatively short-staffed but have to supervise a relatively wide range of affairs and take into consideration the effects of transactions on China’s domestic economic development, some large-scale merger transactions have been held up.
These experts said that because of the potential delay in China and the fact that remedies made by transaction parties are always required in order to deal with Chinese anti-monopoly enforcement authorities’ competition concerns, trading advisers are making an attempt to minimize the Chinese government’s impact on transactions and if possible, even avoid review by Chinese anti-monopoly enforcement authorities. . . .
China introduced its anti-monopoly law in 2008. The country’s rapid economic ascent has turned its anti-trust authority into a powerful actor on the world stage. Global companies pay close attention to its merger enforcement because they are eager to increase their market share in China and generally do not want to make divestitures there. Also, China at times has asked for actions that are not required by anti-trust authorities elsewhere. . . .”
TD also reports that recently Chinese antitrust authorities have gone after an International cartel to fix the prices of automobile wheel bearings targeting Svenska Kullager Fabriken (SKF) Schaeffler, Nippon Seiko Kabushiki Kaisha (NSK), NFC, and NTN.
SECURITIES
FCPA
In the attached April 2014 Dorsey Foreign Corruption Digest, FCPA DIGEST, Dorsey FCPA lawyers state regarding China and Hong Kong:
“Claims have been published that employees of the Chongqing plant of Ford Motor Company (“Ford”) may have paid bribes in order to obtain employment with the corporate.
In a statement issued by Ford, it explained that the company takes the allegations very seriously and has initiated an investigation. In the statement, the Ford representative was quoted saying: “any behavior that violates Ford’s policies, such as the alleged behavior, would result in immediate dismissals of employees”.
It was suggested in the report that the making of corrupt payments may be an attractive option for those seeking employment in a large corporation in an attempt to secure a higher salaried job, as there are increasingly fewer opportunities to get a desirable job with an attractive salary in large corporations; most positions are outsourced to employment agencies.
Wages in Chongqing are significantly lower than in other major cities, such as Shanghai. In a city where the minimum wage is just 1,250 yuan per month, a job at Ford is reported to pay 60,000 yuan per year, in addition to overtime and bonuses.
Hong Kong
According to reports, a former licensed representative and a client of the Hong Kong securities firm, Phillip Securities (Hong Kong) Limited (“PSL”) have been charged by the Independent Commission Against Corruption (“ICAC”) with accepting and offering a total of over $365,000 in illegal commissions respectively in relation to trading in securities.
It has been reported that Ching Yim-har, a former licensed representative of PSL, faces two counts of accepting an advantage, contrary to section 9(1)(a) of the Prevention of Bribery Ordinance (“POBO”). Yip Ying-lai, the PSL client, has been charged with two counts of offering an advantage to an agent, in contravention of section 9(2)(a) of the POBO.
It was alleged that during 2007 and 2008, Ching, accepted $99,688 and $265,688 in illegal commissions from Yip as a reward for providing services as a licensed representative in respect of the investment account of Yip held with PSL. The investigation and hearing resulted from a corruption complaint referred by the Securities and Futures Commission (“SFC”).
It is said, the remaining two charges assert Yip offered $99,688 and $265,688 by way of illegal commissions to Ching for the same purpose.
The SFC and the PSL have offered their full assistance to the ICAC during its investigation.”
SECURITIES COMPLAINTS
On April 23, 2014, it was reported that Securities and Exchange Commission (“SEC”) may file an enforcement action over allegations that Qualcomm Inc. bribed individuals with Chinese state-owned companies. According to earnings reports, Qualcomm obtained 49 percent of its $24.9 billion in sales from China during the fiscal year ending September 2013.
On April 30, 2014, Wai Tak Yeung filed a class action securities case against Giant Interactive Group Inc. of Shanghai, Yuzhu Shi, Wei Liu, Xuefeng Ji, Andrew Y. Yan, Peter Andrew Schloss, Jason Nanchun Jiang, Giant Investment Ltd. and Giant Merger Ltd. GIANT CLASS ACTION
On May 1, 2014, a class action securities case was filed by Ashish Anand against Lihua International, Jianhua Zhu and Daphne Yan Huang. Lihua International Inc. is a Delaware corporation that manufactures, markets and distributes refined copper products through its wholly-owned subsidiaries Danyang Lihua Electron Co., Ltd., (“Lihua Electron”) and Jiangsu Lihua Copper Industry Co., Ltd. (“Lihua Copper”).
