“TRADE IS A TWO WAY STREET”
“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”
PRESIDENT RONALD REAGAN, JUNE 28, 1986
US CHINA TRADE WAR NEWSLETTER FEBRUARY 19, 2015
On January 11thth, I put up my last post stating that because of its length, I have broken up the post into two parts. This February post includes a Trade, Customs and IP update with longer sections on Antitrust and Securities law. My intent was to have a short Trade and Customs update but there is so much happening in the trade area, especially on Capitol Hill, that there are literally day to day developments. Because of the many developments, it has taken a while to put this post up.
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 below is a link to Phoenix 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.
OFFICE PAPER FROM CHINA
On January 21st, a major antidumping and countervailing duty case was filed against Uncoated/ Office Paper from China. Attached are a short form of the petition, International Trade Commission’s Notice of Investigation along with a Wall Street Journal Article quoting me about the new case. OFFICE PAPER CHINA BRAZIL PETITION FED REG OFFICE PAPER ITC The Next Trade Fight Office Paper – WSJ
On January 22nd, Commerce announced its preliminary antidumping determination in the Tires from China case. The Commerce Department Federal Register notice is attached FED REG 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 Commerce Department’s 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.
In response to the Commerce Department’s determination in the Tires case, the Ministry of Commerce in Beijing (“MOFCOM”) condemned the decision stating that the case has “many flaws.” MOFCOM also stated, “Data shows that the U.S. tire industry is in good shape and gets good profit; imports from China did not cause damage to the domestic industry.”
In response, USW International President Leo W. Gerard stated: “It is the Commerce Department’s statutory duty to neutralize the negative effects of the dumped imports into the United States. Dumped imports have cost thousands of American tire workers their jobs. Left unchecked, the combination of illegal dumping and subsidization on imported tires from China would cost Americans tens of thousands of additional jobs.”
On January 21, 2015, in the attached decision, SHENYANG CURTAIN WALLS INSIDE SCOPE in Shenyang Yuanda Aluminum Industry et. Al. vs. United States, the United States Court of Appeals for the Federal Circuit (“CAFC”) determined that imports of Chinese curtain wall, sides of buildings, are within the scope and covered by the US antidumping and countervailing duty orders on Aluminum Extrusions from China.
WOOD FLOORING FROM CHINA
On January 9, 2015, the Commerce Department issued its attached preliminary determination, WOOD FLOORING PRELIM FED REG NOTICE, in the Dec 1, 2012 to Nov 30, 2013 antidumping review investigation in Wood Flooring from China. Rates went up ranging from 0 to 58.84% with most companies getting 18.27%, up from 5.74% in the last review. The final determination will come out in six months. If the final determination stays the same and rates go up, US importers will be retroactively liable for the difference plus interest.
To avoid this liability, importers should fight the review at Commerce.
We are presently in the Court of Appeals for the Federal Circuit arguing against the ITC final injury determination. If we can win, this case may go away.
But retroactive liability for US importers is predictable in antidumping cases because of annual review investigations. Since Commerce can switch surrogate countries in annual review investigations, it is only a matter of time before antidumping rates go up and US importers find themselves liable for substantial antidumping duties. Chinese companies cannot know whether they are dumping and US importers cannot know, because no one knows which surrogate country Commerce will pick to value the raw material inputs and other factors of production.
That is why there is now a surge of Wood Flooring imports from Indonesia because of the fear of retroactive liability. This is exactly what we told the International Trade Commission (‘ITC”) would happen in the initial investigation and now it has happened. But the ITC ignored the argument.
It is also why we formed the Import Alliance for America, www.importallianceforamerica.com. See below. We are now attempting to gather importers together to meet with Congressional Trade Staff this month to speak about their problems.
COURT OF APPEALS DECIDES BECAUSE ANTIDUMPING DUTIES ARE REMEDIAL NOT DEDUCTED FROM US PRICE IN ANTIDUMPING CASES
On February 5, 2015, in the attached Apex Exports v. United States, APEX CAFC CASE, the Court of Appeals for Federal Circuit determined that since antidumping duties are remedial, in calculating the US price to determine dumping when either the foreign exporter or an affiliated US importer is the importer of record, Commerce should not deduct the antidumping cash deposits from the US price. This means that if the import sale is structured correctly, foreign producers can reduce their antidumping rates because of the way Commerce calculates antidumping rates.
As the Court stated:
“Commerce considers antidumping duties as distinct from normal selling expenses and customs duties. Normal customs duties have no remedial purpose. . . . Antidumping duties, on the other hand, are special duties that implement a trade remedy. . . .As the CIT has described it, antidumping duties are “an element of a fair and reasonable price,” not an import duty or cost associated with importation. . . . Furthermore, legislative history signals that antidumping duties are special remedial duties, distinct from U.S. import duties. . . . It is therefore reasonable for Commerce not to treat antidumping duties as costs of importation when calculating EP. . . .
What is more, Commerce declines to deduct antidumping margins when calculating the margins because that would be inappropriately circular and result in a double counting of the remedy. In arguing otherwise, Ad Hoc misses the point of the antidumping statute. The goal of imposing the duty is to prevent dumping by effectively raising the price of subject merchandise in the U.S. to the fair value. The importer has less incentive to charge an unfairly low price, because it will have to make up the difference through a duty payment. . . .
Because Commerce’s interpretation of the antidumping statute is a permissible construction, the CIT’s decision to sustain Commerce’s refusal to deduct antidumping duties when calculating export price is affirmed.”
BOLTLESS STEEL SHELVING
On January 26, 2015, in the attached factsheet, CVD factsheet-prc-boltless-steel-shelving-units-cvd-prelim-012615, the Commerce Department announced an affirmative preliminary determination in the countervailing duty (CVD) case on Boltless Steel Shelving Units from China.
Commerce found preliminary subsidy rates ranging from 12.21 percent for Ningbo ETDZ Huixing Trade Co., Ltd. to 14.53 percent for Nanjing Topsun Racking Manufacturing Co., Ltd. All other producers/exporters in China have been assigned a preliminary subsidy rate of 13.37 percent. In addition, fourteen companies which did not respond to the quantity and value questionnaire received a preliminary subsidy rate of 55.75 percent, based on adverse facts available.
A preliminary antidumping determination in the case will be issued in about two months from now.
SOLAR PRODUCTS CASE—ITC AFFIRMATIVE INJURY DETERMINATION
On February 4, 2015, in the attached decision, ITC INJURY DETERMINATION PRODUCTS CASE, the US International Trade Commission (“ITC”) reached an affirmative injury determination in the Solar Products from China case. As a result, antidumping and countervailing duty orders will be issued against all imports of Chinese solar panels with third country solar cells in them.
COMMERCE HAS INITIATED SECOND SOLAR CELLS ANTIDUMPING AND COUNTERVAILING DUTY REVIEW INVESTIGATIONS
The Commerce Department notice initiating the attached second Solar Cells review investigation. Commerce has also issued the attached quantity and value questionnaire in the antidumping review investigation, and is due February 19th, right in the middle of Chinese New Year. prc-qvq-silicon-photovoltaic-cells-ar-ad-020415 SOLAR CELLS INITIATION NOTICE SECOND REVIEW
FALL OUT FROM SOLAR CELLS AND PRODUCTS CASE—VIETNAM CIRCUMVENTION SOLAR FACTORIES FORCED TO CLOSE DOWN
One US Solar Cells/Panel importer has informed me that the situation in Vietnam right now is “crazy”. US Customs is working with Vietnam customs to inspect “so-called” solar factories and have already closed down a number of them as they were just an address for Chinese companies to get a Certificate of Origin and “cheat” the system by way of transshipment. The Importer went on to state, “Our factory has been inspected twice already and both times had no issues as they are a legit factory using foreign solar cells.”
Vietnam’s crackdown on transshipment should not be a surprise because Vietnam is part of the Trans Pacific Partnership negotiations. Part of the negotiations is cracking down on transshipment and preserving country of origin. This has been a significant topic of the TPP negotiations with Malaysia and apparently Vietnam.
IMPORT ALLIANCE FOR AMERICA
This is also why the Import Alliance for America is so important for US importers, US end user companies and also Chinese companies. The real targets of antidumping and countervailing duty laws are not Chinese companies. The real targets are US companies, which import products into the United States from China.
As mentioned in prior newsletters, we are working with APCO, a well-known lobbying/government relations firm in Washington DC, on establishing a US importers/end users lobbying coalition to lobby against the expansion of US China Trade War and the antidumping and countervailing duty laws against China for the benefit of US companies.
On September 18, 2013, ten US Importers agreed to form the Import Alliance for America. The objective of the Coalition will be to educate the US Congress and Administration on the damaging effects of the US China trade war, especially US antidumping and countervailing duty laws, on US importers and US downstream industries.
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.
We are now in the process of trying to gather importers to meet with various Congressional trade staff as soon as this month to discuss these issues. If you are interested, please contact the Import Alliance through its website or myself directly.
FEBRUARY ANTIDUMPING ADMINISTRATIVE REVIEWS
On February 2, 2015, Commerce published the attached Federal Register notice, FEBRUARY REVIEWS, regarding antidumping and countervailing duty cases for which reviews can be requested in the month of February. The specific antidumping cases against China are: Certain Preserved Mushrooms, Frozen Warmwater Shrimp, Heavy Forged Hand Tools, Graphite Electrodes, Uncovered Innerspring Units, and Wind Towers. The specific countervailing duty case is Wind Towers.
For those US import companies that imported Mushrooms, Shrimp, Hand Tools, Graphite Electrodes, Innerspring Units and Wind Towers and the other products listed above from China during the antidumping period February 1, 2014-January 31, 2015 or during the countervailing duty review period of 2014 or if this is the First Review Investigation, for imports imported after the Commerce Department preliminary determinations in the initial investigation, the end of this month is a very important deadline. Requests have to be filed at the Commerce Department by the Chinese suppliers, the US importers and US industry by the end of this month to participate in the administrative review.
This is a very important month for US importers because administrative reviews determine how much US importers actually owe in Antidumping and Countervailing Duty cases. Generally, the US industry will request a review of all Chinese companies. If a Chinese company does not respond in the Commerce Department’s Administrative Review, its antidumping and countervailing duty rate could well go to the highest level and for certain imports the US importer will be retroactively liable for the difference plus interest.
In my experience, many US importers do not realize the significance of the administrative review investigations. They think the antidumping and countervailing duty case is over because the initial investigation is over. Many importers are blindsided because their Chinese supplier did not respond in the administrative review, and the US importers find themselves liable for millions of dollars in retroactive liability. Recently in the Shrimp from China antidumping case, for example, almost 100 Chinese exporters were denied a separate antidumping rate.
Two US Executives were ordered to pay fines for evading the US antidumping order on magnesium. Gregory Magness, president of Superior Metal Powders Inc., and Eldon Bott, president of Innovative Materials & Solutions Inc., pled guilty to evading antidumping duties in the millions of dollars under the Magnesium antidumping order. Greg Magness was ordered to pay antidumping duties of $287,942 and Eldon Bott was ordered to pay $55,600. The two executives made false statements to the US government to avoid millions of dollars in antidumping duties by smuggling Chinese magnesium, which was later used for $42 million worth of aircraft flares. The two executives circumvented a 305% antidumping duty on Chinese magnesium powder that a U.S. military contractor unknowingly used to produce $42 million worth of flares that draw heat-seeking missiles away from aircraft.
Because both men pled guilty, Magness and Bott will avoid serving any prison time under the terms of their agreements. Under the agreement with Magness, the government has gone after him personally and he agreed to return $100,000 from savings and investment accounts, provided his wife doesn’t assert any claim to the money he agreed to forfeit.
Magness’ son Justin also pled guilty last month to aiding and abetting in the presentation of a false document to customs officers. Two other individuals, Nehill and Wright, are scheduled to be sentenced in June.
WTO DECISION AGAINST COMMERCE IS HAVING A SIGNIFICAN IMPACT ON NUMEROUS US CVD CASES AGAINST CHINA, INCLUDING THE SOLAR CELLS CASE
At the January 27th Senate Finance Hearing, which is described below, the United States Trade Representative and US Senators celebrated all the victories the United States has had in the WTO against China. I personally heard a US Congressman state “We are winning every case against China in the WTO.”
The statement unfortunately is not true because China is also now winning a lot of cases against the USA. As mentioned in my last newsletter, on December 18, 2014 in the attached United States – Countervailing Duty Measures on Certain Products from China, FINDINGS AND CONCLUSIONS COMPLETE WTO REPORT, the World Trade Organization (“WTO”) Appellate Body found the United States in violation of the WTO Agreement, specifically the Agreement on Subsidies and Countervailing Measures (ASCM), with regards to a number of US countervailing duty cases against China, including the following US countervailing duty investigations against China: Pressure Pipe, Line Pipe, Citric Acid, Lawn Groomers, OCTG, Wire Strand, Magnesia Bricks, Seamless Pipe, Coated Paper, Drill Pipe, Aluminum Extrusions, Steel Cylinders, Wood Flooring, and Solar Cells. On January 16, 2015, the WTO Dispute Settlement Body accepted the December 18th Appellate Body decision.
This WTO decision is now having an impact on numerous past Commerce Department countervailing duty determinations against China, which the WTO has determined are inconsistent with the WTO Agreement. In response, on January 28 and January 29, the Commerce Department initiated investigations under 19 USC 3538, Administrative Actions following WTO Panel Reports, on a number of different products.
As the Commerce Department states in the attached notice on the Solar Cells case, CVD RE INVESTIGATION WTO:
This is to inform you that, pursuant to Section 129 of the Uruguay Round Agreements Act, 19 USC 3538, the Department of Commerce (Department) is in the process of making a determination not inconsistent with the findings of the World Trade Organization (WTO) dispute settlement panel (the Panel) and Appellate Body (AB) in United States – Countervailing and Anti-dumping Measures on Certain Products from China (WT/DS449). This dispute concerns the final determination in the antidumping duty investigation on crystalline silicon photovoltaic cells, whether or not assembled into modules from the People’s Republic of China (PRC) and the order published on December 7, 2012.
Several other notices are attached, including Wood Flooring and Coated Paper. 139 Wood Flooring Initiation Letter Coated paper sec 129 inititation letter
As mentioned, in my past post, the WTO faulted the US in its determinations that all state-owned companies, in fact, are the Chinese government and in the Commerce Department’s use of unreasonable all facts available decisions in countervailing duty cases against China.
The WTO Appellate Body also found the US violating the WTO CVD Agreement, the Agreement on Subsidies and Countervailing Measures (ASCM), for failing to use Chinese benchmark prices to calculate whether there is a benefit in its countervailing duty (CVD) investigations. Specifically, at issue was the Commerce Department practice of refusing to accept private or in-country prices in China as a benchmark to calculate the benefit the Chinese subsidy is providing the Chinese exporter/producer. Commerce had determined that all in-country China prices were distorted by Chinese government intervention and used a presumption. The WTO determined that Commerce must make a case by case investigation and cannot use a presumption.
The first issue faulted by the panel relates to how Commerce determines whether a state-owned enterprise (SOE) is a public body capable of bestowing subsidies within the meaning of the CVD agreement. The U.S. already lost on this issue in an earlier WTO case brought by China. Specifically the WTO Appellate body found a violation of the WTO CVD agreement when the Commerce Department determined that state-owned enterprises are a public body capable of providing subsidies simply because it is government controlled. The Appellate Body determined that the U.S. instead has to demonstrate that the SOE is performing a “government function” or has “government authority.”
The panel also faulted the U.S. for initiating the investigations based solely on the existence of export restraints in two CVD proceedings, and for not considering the appropriate factors in determining whether a subsidy was de facto specific in 12 CVD proceedings.
Commerce is complying with the WTO decision by initiating “Section 129″ proceedings, in which Commerce would review the CVD determinations and perhaps alter the margins in order to take into account the Appellate Body findings. But Commerce will probably follow past procedures and simply change its decisions slightly to accommodate the WTO decision.
It should be noted that the Commerce Department’s approach to WTO decisions is mirrored by the Chinese government’s approach to WTO decisions. Many US Senators and Congressmen are very upset about the Chinese government’s reaction to the adverse WTO antidumping determination against the Chinese government’s antidumping determination on Chicken from the United States. In reality, China is simply following the Commerce Department’s approach in these cases. Never give in and just make small changes to policy in response to WTO decisions.
All WTO law is based on reciprocity and what goes around does indeed come around.
UNITED STATES RESPONDS WITH OWN WTO SUBSIDIES CASE AGAINST CHINA
On February 11, 2015, the United States responded with its own WTO complaint against Chinese export subsidies. USTR Michael Froman announced that a new WTO complaint has been filed in the WTO against Chinese export subsidy program, which has supplied export $1 billion in export subsidies to industries ranging from agriculture to medical devices. Specifically targeted is China’s “Demonstration Bases-Common Service Platform” export subsidy regime, under which the Chinese government allegedly Supplies free and discounted services to 179 so-called demonstration bases across seven industries. Those sectors are textiles and apparel, advanced materials and metals, light industry, specialty chemicals, medical devices, hardware and building materials and agriculture.
TRADE POLITICS AND TRADE AGREEMENTS
TRADE NEGOTIATIONS—TPA, TPP, TTIP/TA AND BALI/DOHA ROUND
TPA MOVES FORWARD QUICKLY WITH CHANGES ON A DAY TO DAY BASIS
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. 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 certain 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 openly co-sponsor 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 17, 2014 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 . . . .
On January 8, 2015, Republican leaders in the Senate and the House began to build the case for Trade Promotion Authority. Senate Majority Leader Mitch McConnell, R-Ky, stated that talks have been underway for some time and that the trade area is a critical area in which the Republican majority and President Obama can find common ground.
As McConnell stated,
“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.”
Neither McConnell nor Senate Finance Committee Chairman Orrin Hatch, R-Utah, however, could offer a specific timetable for the legislation to be introduced as members are still working on the details. McConnell went on to state,
“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.”
The President has increased his push for TPA renewal and McConnell stated he was happy that the president had become a “born-again free trader,” but stressed that Obama would have to deal with resistance from Democratic trade opponents if he is to be taken seriously in his decision to reinstate TPA. As McConnell further stated:
“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.”
On January 12, 2015, USTR responded to criticism that the negotiations have been too secret by stating the White House has taken “unprecedented” steps to promote transparency. The USTR released a fact sheet that detailed efforts it said the administration has made to encourage public conversation and to cooperate with the newly Republican-controlled Congress to pass the Transatlantic Trade and Investment Partnership and the Trans-Pacific Partnership.
The USTR stated,
“We are always looking for new ways to engage the public and to seek views that will help inform and guide our trade policy, and enhancing transparency will remain a priority, consistent with the ability to deliver on our ultimate mission, which is to deliver agreements that achieve the maximum possible benefit for the American people. That’s our focus.”
The USTR maintained that it will release the full text of the TPP “well before” it is signed in order to invite further comment.
The fact sheet said the White House has provided the current negotiating texts to any interested members of Congress and has held more than 1,600 congressional briefings on the TPP alone. The USTR also said Congress has been informed “every step of the way,” and that Congressional committees have been able to preview every proposal before they’re brought to the negotiating table.
On January 13, 2015 several small government conservative organizations, including Americans for Limited Government and Tea Party Patriots, in an open letter to Congress argued that Congress should refuse to give President Obama the authority to submit trade agreements for votes on an expedited track, because such a process was against good government.
As the letter stated,
“President Obama has seized power time and again, and Congress has effectively thrown up its hands in despair. Denying him Fast Track Authority sends a clear message that enough is enough. It tells this President that Congress will stand up for itself as a co-equal branch of government and engage in a thorough and complete examination of any agreements that he signs.”
“In light of this President’s disregard for Congressional prerogatives, it would be inexcusable for Congress to provide this President with any additional power. Given the fact that the TPP has largely been negotiated in secret with only the administration’s multinational stakeholder partners involved, it is Congress’ duty to examine every jot and note to ensure that American interests are protected.”
On January 20, 2015, in a speech to the US Chamber of Commerce, Senator Orrin Hatch, new Chairman of the Senate Finance Committee, stated that he would move “carefully but quickly” to introduce a bill that will reinstate the process for swiftly approving trade agreements, calling on the White House to engage with lawmakers in order to facilitate its ambitious trade agenda. Senator Hatch said that he is continuing his effort to work on the bill in close coordination with the ranking Democratic member of the Senate Finance Committee, Sen. Ron Wyden, D-Ore., and House Ways and Means Committee Chairman Paul Ryan, R-Wis. As Senator Hatch stated:
“My plan … is to move carefully but quickly to introduce and mark up a TPA bill. I’m currently working with Ranking Member Wyden and Chairman Ryan to see if there are improvements that might be made to TPA so that we can introduce a bipartisan, bicameral bill in this Congress that we can move in short order.”
But Senator Hatch went on to state:
“If President Obama can be more forward-leaning with members of his party — starting with tonight’s State of the Union address — I believe we can get this done quickly. That is what I am committed to do.”
Following his statement, on the night of January 20th, in the only part of the State of the Union address in which Republican lawmakers clapped and Democrats were silent, President Obama pushed for passage of Trade Promotion Authority stating:
“We should level the playing field. That’s why I’m asking both parties to give me trade promotion authority to protect American workers with strong new trade deals from Asia to Europe that aren’t just free but are also fair. It’s the right thing to do.”
“I’m the first one to admit that past trade deals haven’t always lived up to the hype, and that’s why we’ve gone after countries that break the rules at our expense. But 95 percent of the world’s customers live outside our borders, and we can’t close ourselves off from those opportunities.”
In response, several Democratic members in Congress vowed to fight the Trade Agreements. Representative Rosa DeLauro, a Connecticut Democrat, stating, “It surrenders the Congressional authority that we may need to protect American workers and American consumers.” Representative Louise Slaughter, a New York Democrat, stated “We are going to fight this tooth and nail, and I believe we are going to win.”
But Representative Steny Hoyer of Maryland, the No. 2 Democrat in the House, stated prior to the State of the Union that fast track “can pass” in the House. He also praised prior trade deals as “good for our country and our workers.”
Even before the State of the Union had finished, opponents began issuing statements that night. The Communications Workers of America said it supports many of Obama’s initiatives but wouldn’t stand with him “to send more U.S. jobs offshore.” AFL-CIO President Richard Trumka agreed with Obama’s initiatives on taxes and wages, but added “our opposition to fast-track trade deals that are giant giveaways to big corporations must be resolute” and do not tackle so-called 21st-century trade problems, such as foreign currency manipulation.
The Sierra Club, the Natural Resources Defense Council and 42 other environmental came out against fast-track approval process in a letter sent out to Congress stating that lawmakers and the general public should have a more active role in the negotiations:
“U.S. involvement in trade negotiations should be guided by democracy, transparency, political accountability and must lead to a ‘race to the top’ that provides real protections for communities, workers and the environment. A new model of trade that delivers benefits for most Americans, promotes broadly shared prosperity, and safeguards the environment and public health is possible.”
Both Representative Paul Ryan and Senator Orrin Hatch, however, welcomed Obama’s decision to push TPA, with Hatch putting the burden squarely on the President’s Democrats to ensure the process moves smoothly, stating,
“Democrats in Congress can now either work with the President and Republicans to pass TPA and empower our country to compete, or they can throw up more roadblocks and cast uncertainty on our country’s trade agenda.”
On January 23, 2015, Sander Levin, ranking Democratic Congressman on the House Ways and Means Committee, took aim at Japan in the TPP, stating:
“Japan imports one American car for every 100 Japanese cars imported into the United States each year. The TPP agreement should eliminate tariffs and other charges by a date certain on virtually all products exported by the United States that decrease market opportunities for United States exports.”
On January 27, 2015, the House Ways and Means Committee held a full hearing on US Trade Policy with testimony by USTR Michael Froman. In his Opening Statement, which will be attached to my blog, Ways and Means Chairman Republican Paul Ryan stated in part:
“Expanding American trade is going to be one of our top priorities this year. And the reason why is pretty simple. Ninety-five percent of the world’s customers live outside the United States. I can think of few better ways to grow our economy than to grow our customer base. I believe Americans can compete with anybody, if given a fair chance. That’s why we have to break down barriers to our exports by completing trade agreements.
“Right now, there are several trade deals in the works—all of them very promising. We’re negotiating the Trans-Pacific Partnership with our friends in Asia, the Trans-Atlantic Trade and Investment Partnership with our friends in Europe, the Trade in Services Agreement with countries around the world, and several agreements through the World Trade Organization.
“And if done well, all of them would help create jobs and expand opportunity. And all of them would help shape the kind of economy we leave for our kids.
The fact is, if we don’t write the rules of the global economy, other countries will. They already are. Other countries, like China, are putting in place new trade agreements among themselves. So it’s a simple as this: If we’re not moving forward, we’re falling behind.
“And look at the record. If you add up all the countries that don’t have agreements with us, we run a manufacturing trade deficit. And if you add up all the countries that do have agreements with us, we run a surplus.
“So I think it’s pretty clear: Trade—and trade agreements—are good for our country. We need more of both. And the first thing we need to do to get there is pass trade promotion authority.
“Here’s the issue: When the United States sits down at the negotiating table, everybody at that table has to trust us. They have to know the deal the administration wants is the deal Congress wants—because if our trading partners don’t trust the administration—if they think it will make commitments that Congress will undo later—they won’t make concessions. Why run the risk for no reason?
“On the other hand, once our trading partners know we’re trustworthy—once they can see we’re negotiating in good faith—they’ll be more willing to make concessions. That’s why we have to pass this bill before negotiations are complete.
To get the best deal possible, we have to be in the best position possible. We can’t be negotiating with ourselves. We have to maintain a united front.
“Now, I’m not saying to maximize our leverage we have to maximize the administration’s power. I’d no sooner trust this administration with more power than I’d trust the Patriots with the footballs at Lambeau. What I’m saying is this bill would maximize Congress’s power.
“Let me explain. Nothing stops a president from negotiating a deal without instructions from Congress. So, if we waited till after the negotiations are done to make our views known—if we simply reacted to what the administration put in front of us—we might scuttle the whole deal. That means we have to get involved before the deal is done, not after it’s finished. We have to be proactive, not reactive.
“That’s what TPA does. We call this process ‘trade promotion authority.’ But I think of it more as a contract. We say to the administration, if you want this up-or-down vote, you have to meet three requirements: Number one, you have to listen to us. Number two, you have to talk to us. And number three, you have to remember: we get the final say
“First, TPA lays out all our negotiating objectives for our trade deals. In short, we tell the administration what targets to hit. It’s got to do things like eliminate barriers to our exports, protect our intellectual property, and eliminate unnecessary regulatory barriers in other countries.
“Second, TPA requires the administration to consult with Congress. Any member can meet with our trade representative’s office at any time. Any member can read the text. Any member can attend the negotiations. It’s like a TPA hotline.
“And third, just to avoid any confusion, we put it right in the bill text: Congress gets the final say. If a trade deal requires any changes in our laws, Congress must approve them.
And if the administration violates any of these requirements, we can say, ‘No deal.’ If it doesn’t cooperate, it doesn’t get the up-or-down vote.
“We simply can’t get the best deals without TPA, and that’s why we’ve got to pass it as soon as possible.
“So TPA is front and center, but there are several other measures we must take to help the economy. . . .
“Finally, Congressman Brady has done solid work on the Customs Trade Facilitation and Enforcement Act. The bill would help streamline our customs procedures and enforce our trade laws. And Congressman Boustany has tackled the problem of trade remedy evasion in a creative and effective way. We’ve got to get this legislation across the finish line. . . .
At the January 27th hearing, in a statement, which will be attached to my blog, www.uschinatradewar.com, USTR Michael Froman stated in part:
The Obama Administration’s economic agenda of creating jobs, promoting growth, and strengthening America’s middle class is supported by the work we do at USTR: opening markets and leveling the playing field to ensure that American workers, farmers, ranchers; manufacturers and service providers; innovators, creators, investors and businesses – both large and small – can compete in the world’s fastest growing markets.
Building on Record Breaking U.S. Exports
In 2014, USTR built on record-breaking exports, market opening initiatives, intensive engagement, and trade enforcement to achieve strong results for America’s economy. The data is compelling: Unemployment has dipped to 5.6 percent and we are creating more than 200,000 jobs per month. Those jobs include a gain of 786,000 new manufacturing jobs over the last five years. Manufacturing exports have grown by 9 percent a year on average. Our total exports have grown by nearly 50 percent and contributed nearly one-third of our economic growth since the second quarter of 2009. In 2013, the most recent year on record, American exports reached a record high of $2.3 trillion and supported a record-breaking 11.3 million jobs.
It’s clear, more exports means more good jobs and more jobs are dependent upon exports than ever before. That’s why we’ve worked hard to open more markets to Made-In-America goods and services, agricultural products, innovation, and investment. In the last four years, the increase in U.S. exports has supported 1.6 million more good jobs, which typically pay 13-18 percent more on average than jobs not related to exports.
Done right, trade policy unlocks opportunities for Americans. Done right, trade policy promotes not only our interests, but also our values. And it gives us the tools to make sure others play by the same rules as we do. The United States is an open economy and our borders are already open to trade. But other countries still erect real barriers to our exports. . . .
But we know that the status quo is not an option to compete in the global economy. And we know that our workers are competing against workers in countries that lack even the most basic labor rights. Our businesses are competing against companies that get subsidies from their governments or that don’t have to maintain any environmental standards. If we sit on the sidelines, we will be faced with a race to the bottom in global trade instead of continuing to promote a race to the top. That’s not how we want to compete. As the President said last week, we should be the ones to engage and lead. We want to take the field, establish the rules of the game that reflect our interests and our values, and do so with all the tools we need to win.
Our trade agreements will support American jobs by boosting Made in America exports from our businesses, farms, and factories. In fact, for every $1 billion we export, between 5,400 and 5,900 jobs are supported here at home. By opening rapidly expanding markets with millions of new middle-class consumers in parts of the globe like the Asia-Pacific, our trade agreements will help our businesses and workers access overseas markets, where 95 percent of the world’s consumers and 80 percent of the world’s purchasing power reside. Combined with our supply of energy, highly skilled work force, and culture of innovation, our trade agreements will help once again make America the global production platform of choice. . . .
Trans-Pacific Partnership (TPP) . . . .
In 2014, we significantly advanced negotiation of the TPP, a state-of-the-art trade agreement that will guarantee expanded U.S. access to the rapidly growing economies in the Asia Pacific. Together with the 11 other TPP countries, we have made important progress in the market access negotiations for agricultural products, industrial goods, services and investment, and government procurement. We have also made substantial progress on ambitious, high-standard trade rules that will promote U.S. commercial interests and values in the region, in such areas as intellectual property, digital trade, competition with State-owned enterprises, and labor and environmental protections. The Peterson Institute for International Economics estimates that TPP will add $123.5 billion to U.S. exports each year when it is fully implemented.
We continue to make progress in closing gaps related to autos, agriculture, and other market access issues in our bilateral negotiations with Japan. Japan agreed upfront to provide the longest staging of any TPP products for U.S. autos and truck tariffs, and we continue to work with Japan to address the long-standing barriers to American autos in the Japanese market. We will continue to closely consult with our auto workers and industry as the negotiations proceed in order to get the best deal possible for them. In agriculture, we continue to work hard to dismantle high tariffs, restrictive quotas, and complex administrative policies to create new opportunities for U.S. producers.
At the TPP Leaders meeting in November convened by President Obama, all 12 countries took note of the progress that has been made on TPP, and agreed that the end of the negotiation is now coming into focus. And the TPP countries reaffirmed their commitment to concluding a comprehensive, high-standard agreement, and to work toward finalizing the TPP agreement as soon as possible. . . .
In 2013, the United States exported nearly $1.4 trillion in manufactured goods, which accounted for 87 percent of all U.S. goods exports and 61 percent of U.S. total exports. Here too, we expect that 2014 was a record year. In 2015, the Obama Administration will continue to pursue trade policies aimed at supporting the growth of manufacturing and associated high-quality jobs here at home and maintaining American manufacturers’ competitive edge. U.S. manufacturing is vital to our economy and the Obama Administration is committed to making sure that the United States is competitive in attracting businesses to locate here. This is why we support a dynamic manufacturing sector and research and development policies to support broad-based innovation and advanced manufacturing that will help U.S. workers and firms win the future. As American manufacturers increase their capacity to produce more advanced and value-added goods, consumers around the world continue to place a high value on Made-in-America products. Across our trade negotiations, we aim to create rules that ensure state-owned enterprises (SOEs) do not compete unfairly with private firms, and seek to ensure that rules of origin and global supply chain provisions create conditions for manufacturers to locate here in the United States.
Innovation, Intellectual Property, and the Digital Economy
America’s economic growth and competitiveness depend on its capacity to innovate. Our trade agreements, including TPP and T-TIP, promote strong and balanced IP protection and enforcement while opening markets for U.S. produced IP-intensive goods and services. . . .
We will continue to support a free and open Internet that encourages the flow of information across the digital world. We know that the impact of digital trade is enormous, and thus that a supportive trade framework is critical for its continued expansion. Therefore, among the other twenty-first century issues we are addressing, we are modernizing our trade agenda to promote growth in the digital economy in particular. We will continue to work closely with Congress and all our stakeholders on a wide range of trade issues related to the protection and enforcement of copyrights, trademarks, patents, trade secrets, and other forms of IP. We will also work to push back against efforts by our trading partners to improperly use geographical indications to limit the ability of our farmers and exporters to use common food names and trademarks for their products.
The theft of U.S. intellectual property puts American jobs at risk and generates counterfeit products that can pose a threat to the health and safety of consumers around the world. We utilize our annual “Special 301” Report to identify and resolve IP concerns with many trading partners. . . .
Enforcement Tools Utilized to Protect U.S. Trade Rights Around the World
As we work to open markets around the world, we are simultaneously working to hold our trading partners accountable for their commitments under existing agreements so that American workers, businesses, farmers and ranchers get the full benefit of all the economic opportunities the United States has negotiated over the years. From day one, the Obama Administration has shown an unwavering commitment to enforce our trade rights around the world. Within existing resources, we have undertaken a bold and ambitious trade enforcement agenda reflected in the scale, scope, and systemic importance of our disputes. And for every part of our economy, USTR is fighting on their behalf – from American auto workers to farmers to high-tech manufacturers that need rare earth metals to American service providers.
USTR is building upon significant WTO victories for the United States as we move forward with a robust monitoring and enforcement agenda in 2015. We continue to build on our strong success with major victories in several WTO disputes. In June, the WTO found that China had breached WTO rules by imposing on American cars and SUVs unjustified extra duties, which were assessed on over $5 billion of U.S. auto exports in 2013. In August, the WTO found that China again breached WTO rules by imposing duties and quotas on exports of rare earths, tungsten, and molybdenum, which discriminate against U.S. manufacturers of hybrid car batteries, wind turbines, energy-efficient lighting, steel, advanced electronics, automobiles, and more. . . .
For the 18 WTO complaints filed since 2009, every single case that has been decided has resulted in a win for the United States. And when you consider those victories I just mentioned – the range of trading partners, the types of trade barriers, and value and diversity of exports involved – the power of robust trade enforcement becomes clear. We’re absolutely committed to ensuring American workers get all the benefits of U.S. trade agreements because we’ve seen that trade, done right, supports high-quality, middle class American jobs.
Enforcement of U.S. Free Trade Agreements
The Administration also continued to vigorously monitor our FTA partners’ implementation of their obligations under Congressionally-approved FTAs. . . .
<Deepening our Trade and Investment Partnerships Around the World
The Administration continues to work to deepen our trade relationships around the world. This includes engagement with China, India, Burma, Sub-Saharan Africa and other regions to address concerns with our bilateral trading partners.
On China, the Administration made progress on a wide range of issues, including protection and enforcement of trade secrets and other intellectual property rights, as well as SOEs, investment, services, global drug supply chain integrity, and transparency at the U.S.-China Strategic and Economic Dialogue in July. These engagements yielded concrete changes which support jobs and exports from the United States. We also made significant progress on key issues like transparency and a level playing field in competition law enforcement, agricultural biotechnology, the protection and enforcement of trade secrets, and technology localization at the 25th Joint Commission on Commerce and Trade held in December. There was further progress in the pharmaceutical sector at the JCCT, where China agreed to streamline its approval processes for pharmaceutical and medical devices. We also intensified our negotiations toward a Bilateral Investment Treaty (BIT) with China and expect to initiate the critical “negative list” market access negotiations in early 2015. . . .
Trade Promotion Authority (TPA)
Let me build upon the President’s remarks on trade at the State of the Union. As the President made clear last week, the Administration is committed to securing bipartisan Trade Promotion Authority. America has always been strongest when it speaks with one voice, and that’s exactly what Trade Promotion Authority, or TPA, helps us do. TPA puts Congress in the driver’s seat to define U.S. negotiating objectives and priorities for trade agreements. It clarifies and strengthens public and Congressional oversight by requiring consultations and transparency throughout the negotiating process. It makes clear to our trading partners that the Administration and Congress are on the same page negotiating high standards in our trade agreements. There is no other area of policy that reflects closer coordination between the Executive branch and Congress than trade policy. And in return, I can promise you that we’ll continue working hard to strike balanced agreements that benefit our workers, employers, our environment and the economy at large. . . .
The Administration looks forward to continue working with this Committee and the new Congress as a whole to secure TPA that has bipartisan support. We also look forward to renewing Trade Adjustment Assistance (TAA), which helps provide American workers with the skills to compete in the 21st century. . . .
Promoting Increased Engagement and Transparency in Negotiations
As we work to open markets to support more American jobs, an important part of that work is keeping the public, Congress, and a diverse array of stakeholders engaged and informed. We believe that public participation, Congressional input, and an open national debate enhance trade policy. And to ensure these agreements are balanced, we seek a diversity of voices in America’s trade policy.
The Administration has taken unprecedented steps to increase transparency. Those steps have resulted in more public dialogue and outreach on trade agreements like TPP and T-TIP than on any other free trade agreements in history. This includes the more than 1,600 consultations we’ve had on TPP alone. We have provided access to the current negotiating texts of both agreements to Members of Congress. We have previewed every new U.S. proposal with the Committees of jurisdiction before tabling them in both negotiations. And we have briefed interested Members of Congress before and after every negotiating round—seeking feedback at every stage of the game.
The Administration has also engaged with the public around its trade agenda in new ways. We have held public hearings soliciting the public’s input on the negotiations and suspended negotiating rounds to host first-of-a-kind stakeholder events so that the public can provide our negotiators with direct feedback on the negotiations. We have also shared information on the current status of the negotiations through an array of tools on our website.
We are always looking for new ways to engage the public and welcome input, including from your committee, which will help inform and guide our trade policy. Enhancing transparency will remain a priority, consistent with the ability to deliver on our ultimate mission, which is to deliver agreements that achieve the maximum possible benefit for the American people.
The Obama Administration’s trade agenda is focused on expanding opportunities to export more Made-in-America products, support jobs at home, and create economic growth by opening overseas markets and leveling the playing field for American workers, farmers, and businesses. In doing so, we will continue to advocate for strong, enforceable rules that promote core U.S. values and interests, including protection of U.S. creativity and innovation, access to medicines, fundamental labor rights, and robust environmental commitments. We can only accomplish these shared goals and priorities through strong bipartisan cooperation between Congress and the Administration. We look forward to working with you to ensure our trade policy creates opportunities for all Americans. . . .
In response to USTR Froman’s comments, the Democrats reacted. With regard to transparency, Ranking Democratic Congressman Levin welcomed the attempts to open up the talks for Congressional input, saying more must be done on that front. Democratic Rep. Lloyd Doggett, D-Texas echoed this point arguing that even though members of Congress are allowed to view trade negotiating texts, they are not allowed to take notes or share the documents with certain members of their staff.
As Congressman Doggett stated,
“There is a big difference between quantity and quality on transparency. That is not practicing transparency — it’s practicing secrecy. I can’t find a legal basis for that type of restrictive environment, and I would just urge you to take immediate steps to change it.”
On the same day January 27, 2015, after the Ways and Means hearing USTR Froman spoke to the Senate Finance Committee stating that the TPP talks are coming to completion, but would offer no time table. To see the hearing, follow the following link http://www.finance.senate.gov/hearings/hearing/?id=5ef11836-5056-a032-5292-dc24774c7fe1.
To make the video work, slide the bar to minute 16 when the hearing begins.
In his opening statement, which will be attached to my blog, www.uschinatradewar.com, Senator Orrin Hatch, Chairman of the Senate Finance Committee, stated in part:
Thank you Ambassador Froman, for being here today. I have to say that the trade agenda is looking up since the last time you testified.
Things seem to be improving with our ongoing trade negotiations. For example, while significant gaps remain, the administration seems to be inching ever closer toward a conclusion of a Trans-Pacific Partnership agreement.
Morale at the Office of the United States Trade Representative, after a long period of decline, is beginning to rise. Of course, there is still a lot to be done. And, renewal of Trade Promotion Authority, or TPA, is at the top of my list. But, even in that regard, things seem to be looking up.
Compared with this time last year, the administration is much more engaged at all levels in making the case for renewal of TPA. President Obama’s strong call for TPA in the State of the Union was welcome, though, in my opinion, it was long overdue. I hope that he’ll follow his latest call to action with a real concerted effort to help us get TPA through Congress.
Here in the Finance Committee, we’re doing all we can to help in this effort.
Although the bill I introduced last year with Chairmen Camp and Baucus received broad support, I am currently working with Senator Wyden to see if there is a way to address some additional issues he has raised. We’re working with Chairman Ryan as well.
While there may be some improvements we can make to the bill, I want to make one thing clear: The time for TPA is now.
TPA is how Congress tells the administration and our negotiating partners what a trade agreement must contain to be successfully enacted into law. And, TPA empowers our negotiators to get the best deal possible for American workers.
To succeed in getting TPA renewed, we will need an all-out effort by the administration to make the case for why TPA is so vital to our nation’s ability to fairly engage in international trade and to enhance the health of our economy.
Simply put, trade means jobs. Today 95 percent of the world’s consumers live outside the United States. These potential customers account for 92 percent of global economic growth and 80 percent of the world’s purchasing power. To maintain a healthy economy, we need the opportunity to sell American products in those markets.
Right now, the United States is engaged in some of the most ambitious trade negotiations in our nation’s history. The first, which I already mentioned, is the Trans-Pacific Partnership, or TPP.
Renewal of TPA is key to the success of this agreement. Without TPA, the administration will not be able bring back the high-standard agreement Congress needs to ensure its enactment.
Let me be clear here: It would be a grave mistake for the administration to close TPP before Congress enacts TPA. Doing so may lead to doubt as to whether the U.S. could have gotten a better agreement, ultimately eroding support for TPP and jeopardizing its prospects for passage in Congress.
There are also some key outstanding issues that need to be resolved in TPP. As I have stated in the past, my support for TPA by no means ensures that I will support just any version of TPP that happens to be submitted to Congress for approval.
For me, the agreement must achieve a very high standard for the protection of intellectual property, including twelve years of data protection for biologics, and strong copyright and trademark protections. The intellectual property provisions of TPP must also effectively address the theft of trade secrets and ensure effective implementation and enforcement of IP obligations. Provisions to enhance digital trade and address state-owned enterprises are also critical, as is real market access for U.S. exports. …
Ambassador Froman, all of this represents a very ambitious agenda for your office and for the administration as a whole. But, if I haven’t been clear up to now, let me restate: TPA must be considered an essential element for all of these endeavors.
I believe Congressional renewal of TPA will unleash new energy in our international trade agenda, helping to propel our economy to greater growth and prosperity. History shows that trade agreements concluded with TPA in place create new economic opportunities and higher-paying American jobs.
This year we truly are at the precipice of opportunity. The only question is whether both parties in Congress and the Administration can work together to put in place the necessary tools to seize this opportunity. I certainly think we can, and I will do everything in my power as Chairman of this committee to ensure our mutual success.
In his opening statement, Ranking Democratic Member of the Senate Finance Committee Senator Wyden of Oregon stated,
My bottom line on how the U.S. can improve its trade policy is this:
Today’s global economy moves at a million miles an hour, so clinging to yesterday’s outdated trade policies is a loser for the millions of middle-class American workers counting on political leadership to help create more high-skill, high-wage, middle-class jobs.
Trade agreements need to bulldoze barriers and open new markets to exports made by America’s middle class – the things we grow or raise, build or forge. Done right, trade agreements can help grow the paychecks of middle-class families. That will help take our economic recovery from a walk to a sprint.
According to a report by the Commerce Department’s International Trade Administration, many export-driven jobs – from precision welding to engineering design – offer higher pay and more generous benefits than jobs that aren’t tied to exports. Workers who design and build products like machinery, electrical gear or transportation equipment get into the winners’ circle when the goods they make are exported. The goal of trade agreements should be to take the fruits of American labor and ship them to markets around the world.
With that said, it’s easy to understand why many American workers are frustrated when they haven’t gotten a meaningful raise in decades – or worse, they’ve lost jobs and fallen out of the middle class. When discouraged Americans argue that they’ve been hurt by trade, their voices should not be ignored. They must be heard. Those who favor a trade agenda that takes on the challenges of a hyper-competitive global economy have a responsibility to make the case that it will work for America’s middle class.
I bring that up because the President said during the State of the Union address that, “…past trade deals haven’t always lived up to the hype.”
So, Ambassador Froman, I’d like you to outline today how the administration plans to change that with fresh trade policies that will lift wages, help create middle-class jobs, and expand the winner’s circle.
I hope to discuss what safeguards will be in place to ensure that any workers impacted by trade have access to retraining, health coverage, and other sources of support that connect them with new opportunities. And perhaps most importantly, I hope to hear how the administration will make the case to America’s workers that these modern policies will deliver for them.
To keep my remarks brief, there are a few specific issue I’ll address.
The first is tough enforcement. There has never been a greater need for the U.S. to back its workers and businesses by strongly enforcing our trade laws and agreements. And in the face of unfair schemes by foreign governments and companies that undercut American jobs and exports, trade enforcement works.
Just ask any one of the hundreds of Oregonians who work at SolarWorld, a solar-panel manufacturer in my home state. When Chinese companies made an end-run around our trade laws that threatened SolarWorld and its employees, SolarWorld fought back and won. That victory preserved 900 good Oregon jobs. And American trade enforcers have to keep at it, because China and other governments won’t stop trying to get around the rules anytime soon.
With 21st century trade agreements, tough enforcement also needs to hold foreign governments accountable for commitments to uphold strong labor rights and environmental protections. Those are bedrock elements of trade agreements, and they are not to be ignored or pushed to the periphery.
The second issue to address is technology. Just as containers changed trade in the 20th century, the Internet is changing trade in the 21st, enabling more efficient ways to exchange goods and services internationally. . . . The nation’s trade policies must take advantage of economic areas where there is clearly “Advantage USA.” That means promoting and protecting a free and open Internet — keeping open what is, in effect, the shipping lane of the 21st century.
The third issue to address today is transparency. The American people have made it very clear that they will not accept secretly-written agreements that don’t see the light of day until the very last minute. That was too often the way things worked in the past, but that’s not good enough anymore. Nor is it enough to respond to important questions with the same inadequate refrain: that Americans will benefit from trade deals. People have the right to know what’s at stake in negotiations before they wrap up. Our trade policies are stronger when the American people are part of the debate – and when their elected representatives in Congress are able to conduct effective oversight.
Furthermore, transparency is also critical for a trade promotion authority bill. Once a bill is ready, it must be available to the public. And there must be a fair and open process for its review and consideration. I will work with Chairman Hatch to develop a process along these lines.
No matter where members of this committee stand, I know everyone here is ready to have a serious debate on how to make trade policy work best. My focus will be on finding new opportunities to sell red, white and blue American goods overseas, helping businesses create jobs, and growing the paychecks for middle-class families. I’m eager to find ways for this committee to work on a bipartisan basis with the administration to accomplish those goals.
USTR Froman repeated his remarks before the House Ways and Means Committee earlier that day. Froman further stated that “the contours of a final agreement are coming into focus” and vowed to correct the failures of past trade deals in areas such as labor, environment and state-owned enterprise rules. Froman pledged to be as open as possible stating:
“As we move ahead, we’re committed to providing maximum transparency consistent with our ability to negotiate the best agreements possible. We look forward to working with this committee and others in Congress to determine the best way to achieve that goal.”
Froman added that his office expects to make the text of the TPP public after it is signed and before it goes to Capitol Hill for a vote but cautioned that the U.S. was consulting with other parties in the agreement on possible areas of sensitivity.
Sen. Chuck Schumer, D-N.Y. argued against TPP because of currency manipulation:
“I can’t support a TPP agreement if we do not at the same time enact new statutory law that includes objective criteria to define and enforce against currency manipulation. I will not support moving this trade agreement forward if we’re not fighting to make sure we have the necessary tools to protect the American middle class and American jobs.”
During the question and answer, Sen. Charles Grassley (R-Iowa) stated that the administration needs to step up its arguments to Democrats, in particular, to get TPA cleared by the Senate stating, in part,
“[I] if we are going to get trade promotion authority passed, [the president is] going to have to work the telephones one-on-one with some senators to get us to the 60-vote threshold,” to avoid a filibuster.
With regard to currency manipulation, Froman stated that “Currency is a great concern to us,” but went on to state that the Treasury Department takes the lead on the issue. Sen. Debbie Stabenow (D-Mich.) said she was not seeing any indication that currency issues would addressed in TPA or TPP, commenting that this was a serious problem.
Stabenow also questioned Froman on a press report asserting that the U.S. was dropping a request to lower standards on auto imports to Japan in exchange for Japan agreeing to more rice imports from the U.S. Characterizing the report as “categorically wrong,” Froman said both auto and agriculture negotiations with Japan were continuing “on parallel tracks.”
Sen. John Thune (R-S.D.) stated that Canada’s dairy market was not sufficiently opened as part of the North American Free Trade Agreement and many of the tariff rates on dairy products range from 200 percent to 295 percent. Canada’s dairy policies are a priority, Froman said. The U.S. is engaged with Canada on a whole range of outstanding issues, “and they know that this is very important to us, and we’re working towards hopefully a successful conclusion there.”
After the hearings on Capitol Hill, on January 27th, US Pork producers came out in support of Trade Promotion Authority. In a mass letter to members of Congress, the National Pork Producers Council said that TPA is vital to their industry stating,
“Significant progress has been made with respect to Japan’s market access offer on pork, thanks to the hard work of U.S. trade officials and the strong support of the U.S. Congress.”
The pork producers said that since the passage of the U.S.-Canada free trade agreement in 1989, their exports increased 1,550 percent in value — and they credited TPA for enabling such a boost.
On January 28th at closed door remarks at the House Democratic retreat, President Obama strongly hinted that there would be no currency manipulation language in the TPP according to Rep. Rosa DeLauro (D-CT). President Obama stated that there would be no currency chapter, stating that this issue was under the Treasury Department’s authority.
Obama’s opening remarks to the caucus did not mention trade, but during a question-and-answer session, Rep. Derek Kilmer (D-WA) asked Obama how to make the case for trade agreements to skeptical constituents. Kilmer’s question was the first one the president took.
In response, the President largely reiterated the arguments he has previously made in favor of trade agreements, including that the U.S. needs to sets the rules for trade or China will do so. Sources stated that he did not explicitly mention Trade Promotion Authority (TPA) or urge House Democrats to support it.
The president said he recognized that previous trade deals were “not perfect,” and conceded that no new trade agreement will fix all of the real challenges that arise from globalization and past trade agreements, according to a source who attended the session. It was in this context that Obama raised currency manipulation as one challenge that cannot be fixed through TPP, another source said.
On January 29th, the House Ways and Means Committee sent out the following e-mail, which will be attached to my blog, stating in part that newspapers around the Country are calling on Congress to enact TPA.
WAYS AND MEANS JANUARY 29, 2015 . . . .
As Republicans and Democrats work to put in place bipartisan trade promotion authority, editorial boards from coast to coast are rallying behind the effort. Trade Promotion Authority—or TPA—empowers Congress to set the negotiating objectives when pursing trade agreements with other countries and helps the United States get the best deal possible. Here’s a sampling of what newspapers have had to say about TPA:
Wisconsin State Journal: ‘Congress needs to pass trade promotion authority’
“Free-trade zones across the Atlantic and Pacific oceans would lower tariffs and smooth commerce for all while encouraging higher environmental and labor standards. Past trade agreements ‘haven’t always lived up to the hype,’ Obama acknowledged. But ‘95 percent of the world’s customers live outside our borders.
We can’t close ourselves off from those opportunities.’ No, we can’t — especially in a top manufacturing and dairy state such as Wisconsin, where research and technology are strong.”
San Francisco Chronicle: ‘California will be a winner if Congress blesses a Pacific trade treaty’
“Global trade is an enormous chunk of California’s present and future. It needs to be nurtured, improved and given rules and treaty agreements to protect this thriving financial lifeline.”
The Seattle Times: ‘Congress should enact trade-promotion authority’
“Congress must not delay in approving TPA. [It] would have substantial and lasting effects on the state’s and nation’s economies.”
Washington Post: ‘The Trans-Pacific Partnership can help the U.S. counter China’s expansion’
“Both economically and geopolitically, the Trans-Pacific Partnership would perpetuate the United States’ stabilizing role in Asia; it is one of the Obama administration’s brightest ideas. All that’s left now is for both the president and Republican leaders in Congress to keep their promises and make it happen.”
Houston Chronicle: ‘Expansion of international trade agreements would mean a whole lot of good for the U.S.’
“President Obama and the new Republican majorities in the House and Senate can demonstrate that they are capable of agreement on important issues that will result in good jobs and more exports for farmers and the manufacturing, service and tech sectors.”
Minneapolis Star Tribune: ‘More trade means more Minnesota jobs’
“Rising exports mean more jobs. Minnesota has the natural and human resources to compete at the highest global level, meaning that state workers can benefit from expanded free trade.”
Chicago Tribune: ‘TPA is essential for overcoming the inevitable fight against vested interests’
“TPA empowers Congress to establish negotiating objectives, and enhances its ability to set priorities. The U.S. is legally bound to a trade agreement only if Congress votes to approve it. TPA, which has been essential to reaching trade deals since the 1930s, has proven to be fully consistent with the Constitution and supportive of U.S. sovereignty.”
On January 30, 2015, Senate Finance Chairman Orrin Hatch stated that the new legislation reviving the administration’s trade negotiating authority will closely resemble a bill he introduced last year, touting the need for strict rules on intellectual property, currency manipulation, and other areas. Senator Hatch declared the U.S. trade agenda to be “at the precipice of opportunity.” Hatch further stated,
“The U.S. needs to lead on trade. We need to establish rules that hold other nations accountable for their unfair trade practices. And we need to tear down barriers that block our goods from foreign markets. We can only do that if we renew TPA and do so soon.”
Hatch declined to give a hard and fast timeline for the bill, saying only that he was working with Finance Committee Ranking Member Ron Wyden, D-Ore., to settle certain differences and introduce the legislation “in short order.”
“We need to see commitments from our partners in ongoing trade negotiations to avoid manipulating exchange rates to gain an unfair competitive advantage over other parties to the agreement, a standard reflecting commitments parties have made in the International Monetary Fund. It is essential that Congress know how the administration intends to address his problem in ongoing negotiations.”
On February 3, 2015, USTR Froman pushed state-level agricultural officials stating that their support will be critical to ensure swift movement of the White House’s robust trade agenda, touting the benefits of the administration’s two biggest negotiating efforts for U.S. food producers. Froman stated,
“We need you to remind farmers and ranchers in your states that trade agreements are how we can level the playing field for our workers, farmers, and businesses and protect America’s competitiveness for the next generation. We need you to remind them how important exports are to more good jobs here in the U.S.”
Froman again claimed that the shape of a final TPP deal is “coming into focus” and that the U.S. is looking to chip away at large tariffs on poultry, beef and pork in countries like Canada, Australia, Japan and Vietnam.
On February 5, 2015, at the Senate Finance Committee, Treasury Secretary Jacob Lew stated that the Obama administration is not prepared to insert a section into future trade agreements to stop currency manipulation, stating that such a confrontational move might undermine its ongoing efforts to tackle the issue diplomatically. Facing pressure from numerous members of the Senate Finance Committee, Lew said the administration had been successful in pushing back against currency manipulation in its bilateral engagements with countries like China, adding that punitive language in trade deals could stop that progress.
As Secretary Lew stated,
“I think the challenge in the context of a trade agreement is how to address the issue in a way that helps and doesn’t hurt. I would be concerned that the effectiveness we have dealing through the existing channel could be diminished in some ways, if some approaches were taken.”
“When we push back, there is a response where we’ve, I think, been quite successful pushing back on even the hint of interventions that have those characteristics in a time that we’ve been here.”
An odd situation is arising in the US Congress where liberal Democrats and Tea Party Republicans are working together to stop TPA. An alliance between Tea Party Republican Congressmen Louie Gohmert and Dana Rohrabacher, two of the more conservative members, and two strong liberal Democratic Congresswomen, Rosa DeLauro and Louise Slaughter is emerging. The Tea Party Republicans object to giving such trade negotiating authority to the President, and the liberal Democrats are objecting to the impact of any trade agreement on US jobs and labor unions.
Dana Rohrabacher, a Tea Party Republican, stated, “This president has tried to rule by dictate in a number of arenas. He’s issued executive orders in a way that is totally out of sync with what executive orders are supposed to be about. A lot of people think this president has been much more aggressive in centralizing power.”
Congresswoman Rosa DeLauro echoed the statement by the Tea Party Republican,
“We have trusted and trusted for years and years, and it’s only been to the detriment of American workers. Members of Congress are fed up with this. The trust factor, whether it’s Barack Obama or anyone else, is not there any longer.”
As the New York Times observed in a February 10, 2015 article,
The White House understands that trade promotion authority will be a tough sell with Democrats. Instead, the president’s strongest supporters include two men he has frequently battled: the House speaker, John A. Boehner of Ohio, and Senator Mitch McConnell of Kentucky, the majority leader.
The Times goes on to state:
But even as most liberal Democrats have become disenchanted with the trade agenda advocated by a variety of American business interests, it is the erosion of support in the rank-and-file right that has Mr. Obama sweating the most. In 2002, the last time Congress approved such authority, the House passed it by a bare majority, 215 to 212, with 190 Republicans carrying the load, and only 27 Democrats coming along for the ride.
That was for George W. Bush. This time, Mr. Boehner, prominent committee chairmen like Mr. Ryan and an alliance of business and agricultural groups are going to have to persuade dozens of conservatives to confer power on a president they say has seized too much authority already. Tea Party groups are already flexing their muscle with Republicans they helped elect, pressuring them to oppose anything that strengthens Mr. Obama’s hand and, they argue, weakens United States sovereignty over economic policy.
As the Times Article further states, although the Administration and the pro-trade Coalition stated that the have the numbers to pass trade promotion authority:
they have work to do. About 150 of the House’s 188 Democrats have already signed on to letters opposing fast track, an ominous figure for the president, since Mr. Boehner said last Congress he would need as many as 50 Democratic votes.
In 2013, 22 House Republicans signed on to their own opposition letter, of which 17 remain in Congress.
On February 12, 2015 the House Ways and Means Committee issued the following e-mail release on Currency Manipulation opposing the implementation of a bill to unilaterally hit countries on Currency Manipulation:
FEBRUARY 12, 2015
Currency Manipulation: Finding the Right Solution
There is great unease today about currency manipulation abroad—and rightfully so. Some countries—particularly China—have distorted exchange rates to gain an advantage in the world market, hurting American exports by making their goods cheaper and ours more expensive.
It’s a legitimate problem that deserves a real response. The United States holds the world’s reserve currency. We have a unique ability to pressure countries to stop the manipulation, and we must do more. That’s why Trade Promotion Authority legislation (TPA) raises fighting manipulation to a primary negotiating objective and provides the administration more tools to tackle the practice.
At the same time, some in Congress have called for a more confrontational approach.
Opposed by the administration and many in Congress, including Chairman Ryan, this counterproductive tactic would trigger higher tariffs on any country believed to be manipulating its currency, either through unilateral U.S. action or through a mechanism in trade agreements. While possibly appealing on its face, this approach presents significant problems. It could:
Lead to a tariff war that will increase barriers to trade and cost jobs;
If the United States begins unilaterally levying tariffs, our trading partners will no doubt do the same, leading to a dangerous cycle that would undermine the very purpose of trade agreements—to break down barriers—and, more importantly, hurt American competitiveness and jobs.
Capture the wrong culprit and put the U.S. at risk of manipulation charges;
There is no clear definition of currency manipulation or simple calculation for it, and trying to legislate such a complex matter poses the risk of triggering a trade war in response to innocent currency movements. At the same time, it would not be difficult for other nations to assert the U.S.’s monetary policy is intended to tilt the playing field.
<Risk putting the U.S. in violation of international obligations and out of WTO
Pursuing a unilateral approach would likely cause the United States to be a target for retaliation by countries like China, harming our businesses and their employees.
Make the U.S. vulnerable to lawsuits and jeopardize our ability to set our own
Even pursuing provisions in trade agreements that would allow us to increase tariffs on manipulators would expose us to litigation, whether justified or not, when countries challenge our monetary policy. And even if the United States ultimately prevails, litigation would distract from broader efforts to address currency manipulation and shield real currency manipulators.
Threaten the U.S. dollar’s standing as the world’s leading currency;
The United States has become the holder of the world’s reserve currency not by accident or by any law, but rather through strength and steadiness. And the status provides the U.S. immeasurable benefits. Maintaining stability and pursuing currency grievances through multinational forums are critical to protecting this valued position we hold in the world.
Derail the Trans-Pacific Partnership (TPP) and its potential benefits to the U.S.;
Creating mechanisms to increase tariffs through trade agreements because of currency policy would no doubt cause nations with which we are currently negotiating a significant trade agreement to rethink whether the United States is a viable trading partner, causing them to pull out of these negotiations. Missing out on a good TPP agreement would be a critical blow to America’s credibility and an enormous missed opportunity to create good jobs.
And, for all the downside, it probably wouldn’t work.
With all the damage such an approach would do to the United States and our standing in the world, it provides no real incentive for bad actors to change behavior. What’s more, monetary and domestic fiscal policy have much greater impact on the value of a currency than would the type of market interventions targeted by this proposal.
So what is the right solution?
For starters, let’s put in place multinational rules that have proven to yield results. The G-7, G-20, and IMF efforts have had success in limiting attempts to manipulate currency and in some cases outright stopped market interventions. For example, as a result of commitments taken by the G-7, Japan has not intervened in foreign currency markets in an effort to lower the value of the yen in the last three years.
But we can—and must—do more. That’s why TPA legislation would make fighting currency manipulation a primary negotiating objective for all trade agreements. In addition, TPA provides the administration with tools such as “cooperative mechanisms, enforceable rules, reporting, monitoring, transparency, or other means, as appropriate” to address currency manipulation. It is incumbent upon the administration to continue pursuing efforts to rein in the practice, and Congress must continue to press for better results.
Finally, another important step we can take is put in place more trade agreements. A more interconnected global marketplace will have even less tolerance for manipulation. And as Chairman Ryan has said, “If we don’t write the rules of the global economy, somebody else will—somebody who may not have our best interests at heart. And if we don’t like the way the global economy works, then we have to get out there and change it.”
That’s why enacting trade legislation like TPA with a thoughtful approach toward currency manipulation is so critical. Currency manipulation is a legitimate threat, but our response must be one that advances, rather than undermines, our trade agenda and our economy.
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.
Recently we have learned although President Obama preaches a good game, the Commerce Department has proposed reducing trade adjustment assistance for companies to $10 million. This very small amount is to help all companies nation- wide hurt by imports?? Yet, if we can save the companies, we save the jobs that go with those companies
According to the Commerce Department’s 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.
As Democratic Congressmen stated in a December 8, 2014 letter to Speaker Boehner and Minority leader Nancy Pelosi:
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.”
As the TPP, TTIP and other trade agreements come into force changing the US market by government action with the force of a government tsunami, TAA for firms/companies is the only program that will give companies the tools they need to adjust to increased trade/import competition from so many different countries.
US APPROVES TRADE FACILITATION AGREEMENT
In addition to Hong Kong, on January 23, 2015 the US government officially ratified the WTO trade facilitation agreement. The TFA is expected to cut Customs red tape at ports around the World. Experts have estimated that the TFA could add billions to the World economy.
CHINA ANTIDUMPING CASES AGAINST US
On January 28, 2015, the Chinese government reported that it has three outstanding antidumping and countervailing duty orders against the United States: Grain Oriented Flat-rolled Electrical Steel, Broiler (Chicken) Products; and Solar-grade Polysilicon.
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 to my blog are copies of the powerpoint or the speech and a description of our Russian/Ukrainian/Latvian Trade Practice for US importers and exporters. In addition, the blog describes the various sanctions in effect against Russia.
Pursuant to the OFAC regulations, U.S. persons are prohibited from conducting transactions, dealings, or business with Specially Designated Nationals and Blocked Persons (SDNs). The blocked persons list can be found at http://sdnsearch.ofac.treas.gov/. See also: www.treasury.gov/resource-center/sanctions/programs/pages/ukraine.aspx . The list includes the Russian company, United Shipbuilding, and a number of Russian Banks, including Bank Rossiya, SMP Bank, Bank of Moscow, Gazprombank OAO, Russian Agricultural Bank, VEB, and VTB Bank. The “Sectoral Sanctions Identification List” (the “SSI List”) that identifies specific Russian persons and entities covered by these sectoral sanctions can be found at www.treasury.gov/resource-center/sanctions/SDN-List/pages/ssi_list.aspx.
The sanctions will eventually increase more with the Congressional passage of the Ukraine Freedom Support Act, which is attached to my blog, which President Obama signed into law on December 19, 2014. Although the law provides for additional sanctions if warranted, at the time of the signing, the White House stated:
“At this time, the Administration does not intend to impose sanctions under this law, but the Act gives the Administration additional authorities that could be utilized, if circumstances warranted.”
The law provides additional military and economic assistance to Ukraine. According to the White House, instead of pursuing further sanctions under the law, the administration plans to continue collaborating with its allies to respond to developments in Ukraine and adjust its sanctions based on Russia’s actions. Apparently the Administration wants its sanctions to parallel those of the EU. As President Obama stated:
“We again call on Russia to end its occupation and attempted annexation of Crimea, cease support to separatists in eastern Ukraine, and implement the obligations it signed up to under the Minsk agreements.”
Russia, however responded in defiance with President Putin blasting the sanctions and a December 20th Russian ministry statement spoke of possible retaliation.
One day after signing this bill into law, the President issued an Executive Order “Blocking Property of Certain Persons and Prohibiting Certain Transactions with Respect to the Crimea Region of Ukraine” (the “Crimea-related Executive Order”). President Obama described the new sanctions in a letter issued by the White House as blocking:
New investments by U.S. persons in the Crimea region of Ukraine
Importation of goods, services, or technology into the United States from the Crimea region of Ukraine
Exportation, re-exportation, sale, or supply of goods, services, or technology from the United States or by a U.S. person to the Crimea region of Ukraine
The facilitation of any such transactions.
The Crimea-related Executive Order also contains a complicated asset-blocking feature. Pursuant to this order, property and interests in property of any person may be blocked if determined by the Secretary of the Treasury, in consultation with the Secretary of State, that the person is operating in Crimea or involved in other activity in Crimea.
The EU has also issued sanctions prohibiting imports of goods originating in Crimea or Sevastopol, and providing financing or financial assistance, as well as insurance and reinsurance related to the import of such goods. In addition, the EU is blocking all foreign investment in Crimea or Sevastopol.
Thus any US, Canadian or EU party involved in commercial dealings with parties in Crimea or Sevastopol must undertake substantial due diligence to make sure that no regulations in the US or EU are being violated.
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.
On January 26th, Adam Szubin, the director of the Office of Foreign Assets Control, a top US Treasury official, stated that more targeted sanctions could be coming against Russia as the violence in eastern Ukraine escalates.
On February 9th, Chancellor Merkel met with President Obama and the decision was to leave the sanctions in place. On February 11th, Germany, France, Ukraine and Russia are expected to have talks in Belarus in an attempt to establish a peace agreement in the Ukraine.
MADE IN USA—NORDTROM AND LAND’S END BOTH HAVE PROBLEMS
On January 27, 2015, a California Federal Judge denied Nordstrom’s motion for an interlocutory review of a proposed class action accusing them of falsely marketing jeans as “made in the USA.” California has a much stricter “Made in USA” law than the Federal FTC law or any law in the rest of the United States.
On the same day, Land’s End moved to end a proposed class action case in California alleging that the clothing retailer inflated prices on its clothes by labeling foreign-made apparel as produced in the USA.
IP/PATENT AND 337 CASES
SUPREMA ORAL ARGUMENT
On February 5, 2015, the Court of Appeals for the Federal Circuit held an oral argument in the Suprema case to determine whether section 337 can be used to bar imports that induce patent infringement. It was reported that the CAFC judges appear split on whether “articles of infringement” in section 337 refers only to the imported items themselves, and not how they will be used upon sale in the U.S.
Plaintiff argued that Articles of infringement mean only imports that infringe the patent at the time of entry into the US and the imports did not infringe the patent at time of entry.
The ITC lawyer argued that the Commission must analyze the patent as a whole in determining which items infringe. The ITC lawyer stated;
“The invention is the process.” Isolating the items from their ultimate use is “not how [patent cases] are adjudicated.”
NEW 337 CASE AGAINST CHINA
On February 9, 2015, a new 337 complaint was filed by Andreas Electronics Corp on Audio Processing Hardware and Software and Products against Acer Inc., Taiwan; Acer America Corp., San Jose, CA; ASUSTEK Computer Inc., Taiwan; ASUS Computer International, Fremont, CA; Dell Inc., Round Rock, TX; Hewlett Packard Co., Palo Alto, CA; Lenovo Group Ltd., China; Lenovo Holding Co., Inc., Morrisville, NC; Lenovo (United States) Inc., Morrisville, NC; Toshiba Corp., Japan; Toshiba America Inc., New York, NY; Toshiba America Information Systems Inc., Irvine, CA; and Realtek Semiconductor Corp..
NEW PATENT AND TRADEMARK CASES AGAINST CHINESE, HONG KONG AND TAIWAN COMPANIES
On January 13, 2015 Azure Networks Inc. filed a patent case against ZTE Corporation and ZTE (USA) Inc. AZURE ZTE COMPLAINT
On January 21, 2015, Music City Metals Co. filed a trademark case against Xiao Jin Hua, Hou Huanqing, King Shin International, King Jing LLC, King Shin International Co., Ltd. KZNG SHZN International Co., Ltd. and BBQ Parts Ltd.MUSIC CITY COMPLAINT Complaint 3-15cv67
On January 27, 2015, Robertshaw Controls Company filed a trademark unfair competition case against Ningbo Ranco Machinery & Equipment Co., Ltd.NINGBO TRADEMARK CASE
On January 28, 2015, Spy Optic Inc. filed a trademark, unfair competition case, against Alibaba.com, Albaba.com Hong Kong Ltd., Alibaba Group Holding Ltd.,ALIBABA TRADEMARK CASE
On January 30, 2015, Consolidated Work Station Computing LLC filed a patent case against Huawei Technologies USA, Inc. and Huawei Device USA Inc. CONSOLIDATED HUAWEI
On February 3, 2015, Thingcharger Inc. and P3 International Corp. filed a patent case against Viatek Consumer Products Group, Inc., Viatek International LLC, Foshan Um Electronics Co., Ltd. Foshum complaint
On February 4, 2015 Paxton Sales, Inc. filed a copyright and unfair competition case against Vogue Furniture Direct Inc., Guozhi Qiao, and Zhejiang Chairmeng Furniture Co., Ltd. PAXTON FURNITURE COPYRIGHT COMPLAINT
On February 6, 2015, Avionqs LLC filed a patent case against Air China Cargo Company. CHINA CARGO PATENT CASE
On February 9, 2015, United States Pumice Company filed a trade secrets unfair competition case against Seung Joon Lee and Yiwe Xianxue Company Ltd. dba Ipumice.comPUMICE CHINA CASE
On February 12, 2015, Toyo Tire and Rubber Co and Toyo Tire USA Corp. filed an unfair competition, trade dress case against CIA Wheel Group, Doublestar Dong Feng Tyre Co., Tire Industrial Co., Ltd. and Double Star Group Corp. QINGDAO TYRE CASE
On February 13, 2015, eDigital Corp filed a patent case against Shenzhen Gospell Smartphone Electron Co., dba Ocea Camera, Ividem Ltd., New Sight Devices Corp. SHENZHEN CASE
CHINESE INVESTMENT AND PRODUCTION IN UNITED STATES—FOREIGN INVESTMENT FILING REQUIREMENTS
On December 4, 2014, Mellissa Krasnow, a Dorsey attorney, published the following article about the filing requirement for Foreign Investments in the United States:
The U.S. Bureau of Economic Analysis recently launched the BE-13, Survey of New Foreign Direct Investment in the United States. See http://www.dorsey.com/eu-be-13-new-foreigndirect- investment-in-us/. There are civil penalties, injunctive relief and criminal penalties for failing to file BE-13 when required, so whether BE-13 needs to be filed must be determined and the obligation to file must be complied with. Questions for companies to ask regarding acquisitions completed since January 1, 2014 (data is being collected retroactively back to January 1, 2014) and going forward include:
Has your company made foreign investment filings with the U.S. Bureau of Economic Analysis?
Has your company been contacted by the U.S. Bureau of Economic Analysis in 2014?
Is the total cost of the transaction greater than US$3 million and:
Did a foreign entity or an existing U.S. affiliate of a foreign entity acquire a voting interest in a U.S. enterprise, segment or operating unit? If yes, consider the requirements for BE-13A at https://www.bea.gov/surveys/pdf/be13/be13a-fillable.pdf;
also consider the requirements for BE-13C at Https://www.bea.gov/surveys/pdf/be13/be13c-fillable.pdf.
Did a foreign entity or an existing U.S. affiliate of a foreign entity establish a new legal entity in the United States? If yes, consider the requirements for BE-13B at
Did an existing U.S. affiliate of a foreign parent acquire a U.S. business enterprise or segment that it then merge into its operations? If yes, consider the requirements for BE-13C at https://www.bea.gov/surveys/pdf/be13/be13cfillable.pdf.
Did an existing U.S. affiliate of a foreign parent expand its operations to include a new facility where business is conducted? If yes, consider the requirements for BE-13D at https://www.bea.gov/surveys/pdf/be13/be13dfillable.pdf.
Does the U.S. business enterprise not meet all of the above requirements? If yes, consider the requirements for BE-13 Claim for Exemption at https://www.bea.gov/surveys/pdf/be13/be13-claimfillable.pdf.
These filings are due within 45 days after the acquisition is completed, the new legal entity is established, or the expansion is begun.
US LITIGATION ORDERING FOREIGN COMPANIES TO BREAK ATTORNEY CLIENT WORK PRODUCT
Dorsey lawyers for the Bank of China are attempting to overturn a US judge’s order to release materials to plaintiff collected during the Bank of China’s internal investigation. Dorsey lawyers for the Bank are arguing that the documents were prepared under the direction of outside counsel in anticipation of potential litigation and should not be released to the Plaintiffs because of attorney-client privilege.
The Federal Judge faulted the Bank for failing to provide information as to when it began communicating with its original outside attorney at Preston, Gates about the matter, and that it failed to state the dates and nature of his involvement, including whether he “directed or claims to have directed any aspect of the investigation”.
In the objection to the order, Bank of China’s lawyer Lanier Saperstein at Dorsey & Whitney said that “Judge Gorenstein has effectively created new rules for establishing work-product protection and attorney-client privilege,” adding that the new rules would prevent a business like Bank of China “from communicating with an attorney for the purpose of obtaining legal advice unless the attorney first directs the client to do so.” Saperstein argued that Judge Gorenstein’s order is contrary to a Second Circuit ruling in United States v Adlman where the court established that work-product protection applies if “the documents can fairly be said to have been prepared or obtained because of the prospect of litigation”.
Saperstein also rejected the assertion that only communications made at the request of the attorney apply for attorney-client privilege. Limiting privilege “to only those communications made at the direction of the attorney would lead to perverse results,” Saperstein said, adding: “Under this requirement, a client who describes his situation to an attorney before asking for advice would receive no protection.”
Saperstein further stated: “I’m particularly thrown by the theme that runs through the decision, which is that you need to establish the counterfactual world, and show what you would have done had the facts been different.”
He said the decision places a very high burden on companies, stating:
“I’ve never submitted an Upjohn declaration stating what we would have done had we not anticipated litigation. [I’m] not entirely sure how one does that, because it moves away from the factual situation to a hypothetical one. How would one attest to what you would have done in a different scenario?”
There have been major developments in the antitrust area both in the United States and in China.
VITAMIN C ORAL ARGUMENT
On January 29, 2015, oral argument was held in the Second Circuit Court of Appeals in the Vitamin C Antitrust Case against Chinese companies. In that appeal, two Chinese companies Hebei Welcome Pharmaceutical Co. Ltd. and North China Pharmaceutical Group Corp., along with China’s Ministry of Commerce (“MOFCOM”) are trying to reverse a $153 million dollar award against the two Chinese companies from a Brooklyn, New York in an antitrust class action over price-fixing of vitamin C exports to the US from China. During the argument, MOFCOM’s counsel argued that the proceedings are seen “as an affront to the Chinese government,” especially the notion that China tried to tweak its laws after the fact.
But William Isaacson of Boies, Schiller, the Plaintiff’s lawyer argued that Chinese law, or its possible evolution, was not before the jury and urged the panel to respect the vigorously litigated proceeding and voluminous record below, stating:
“It shows no disrespect to a government to disagree with them. The good people of Brooklyn were not asked to decide what Chinese law says,” only to decide whether the government made the companies fix their prices. “If there’s no actual compulsion, there’s no comity issue.”
Augustine Lo, a Dorsey Trade and Corporate lawyer, attended the oral argument and reported as follows:
The Second Circuit oral argument in the Vitamin C antitrust case was interesting. Counsel for the two Chinese companies who went to trial (Wilson Sonsini), counsel for MOFCOM (Carter Phillips of Sidley Austin LLP), and counsel for plaintiffs (Boies Schiller) presented their arguments. The panel consisted of Chief Judge Cabranes, Judge Hall, and Judge Wesley.
As you may recall, Federal District Court Judge Cogan of Eastern District New York (same judge as Arab Bank trial) ruled that MOFCOM’s statement in support of the Chinese companies was insufficient to prove that the PRC government compelled the antitrust violation at issue. In effect, the Federal District Court Judge decided that plaintiffs’ explanation of Chinese law and ambiguous translations of witness statements concerning the lack of strict enforcement were more authoritative than MOFCOM’s statement. MOFCOM was furious.
Defendants-Appellants’ counsel focused his argument on the comity issue – that the District Judge failed to defer to the MOFCOM statement and failed to acknowledge the international relations conflict between price fixing authorized by Chinese law and prohibition of the same conduct under U.S. antitrust law. Plaintiffs-Appellees’ counsel explained that the District Judge properly excluded the Chinese regulation from the jury because the interpretation of the regulation was a question of law that the judge previously settled under Rule 44.1. Plaintiffs contend that the jury was able to decide there was no compulsion based on the record evidence. In rebuttal, defendants countered that the translations on the record regarding the companies’ voluntary conduct were ambiguous, which militates even more strongly in favor of deference to the MOFCOM statement.
Judges Cabranes and Hall seemed more receptive to defendants-appellees’ comity arguments. I predict a 2-1 vote in favor of reversal on the issue of comity. It’s unclear whether they will remand for dismissal for lack of jurisdiction (as requested by defendants), or whether they may remand for new trial and require the District Court Judge to accord proper evidentiary weight to the MOFCOM statement.
CHINA ANTI-MONOPOLY CASES
On February 9, 2015, it was announced that Qualcomm Inc. agreed to pay $975 million to end the Chinese government’s antitrust investigation under China’s anti-monopoly law into whether it used its position as the world’s largest smartphone chipmaker to charge discriminatory fees to patent licensees. The settlement came after meetings on February 6th between Qualcomm and China’s National Development and Reform Commission (“NDRC”). Qualcomm also agreed to lower its royalty rates on patents used in China and to change its licensing practices as part of the deal.
Derek Aberle, Qualcomm’s President, stated:
“We are pleased that the investigation has concluded and believe that our licensing business is now well positioned to fully participate in China’s rapidly accelerating adoption of our 3G/4G technology. We appreciate the NDRC’s acknowledgment of the value and importance of Qualcomm’s technology and many contributions to China, and look forward to its future support of our business in China.”
The NDRC ruled that Qualcomm violated China’s anti-monopoly law with its patent licensing practices, and the company agreed not to contest the finding.
Apparently, the Chinese market and the potential for large profits are just too big for US companies to ignore.
On December 19, 2014, the Chinese Daily reported on the December 16-18 JCCT talks between the US government and the Chinese government stating, “China said it will treat all market entities equally in anti-monopoly enforcement and allow foreign companies’ legal advisers to observe meetings between litigants and anti-monopoly enforcement agencies.”
In the fact sheet, which was circulated at the end of the talks, the Commerce Department stated regarding the Chinese government’s agreement at the JCCT talks:
U.S. industry has asserted that China’s competition policy enforcement authorities seem to be targeting foreign companies and at times use Anti-monopoly Law investigations as a tool to protect and promote domestic national champions and domestic industries. U.S. industry also has expressed concern about insufficient predictability, fairness and transparency in China’s investigative processes, as well as pressure from the Chinese authorities not to seek outside counsel or have counsel present at meetings. China’s commitments below help to address several of these concerns.
In order to build on the recognition of the United States and China in the Sixth Meeting of the U.S.-China Strategic and Economic Dialogue that the objective of competition policy is to promote consumer welfare and economic efficiency, rather than promote individual competitors or industries, and that the enforcement of their respective competition laws should be fair, transparent, objective, and non-discriminatory, and China’s commitment that its three Antimonopoly Enforcement Agencies (AMEAs) are to provide to any party under investigation information about the AMEA’s competition concerns with the conduct or transaction, as well as an effective opportunity for the party to present evidence in its defense:
a) China clarifies that in enforcing the AML, all business operators shall be treated equally.
b) Where AML violations are found, China clarifies that it is to impose enforcement measures that address the harm to competition, and not to impose enforcement measures designed to promote individual competitors or industries.
China clarifies that its AMEAs will, (1) when undertaking administrative actions, strictly follow statutory limits on their authority, procedures, and requirements as laid out in China’s relevant laws, regulations and rules; and
(2) before imposing penalties, notify the parties of the facts, grounds, and basis according to which the administrative penalties are to be decided, notify the parties of the rights that they enjoy in accordance with the law, and provide the parties with the right to state their cases and to defend themselves.
China clarifies that all administrative decisions that impose liability on a party under the AML will be provided in writing to the party and include the facts, reasons, and evidence on which the decision is based. China clarifies that it will publish the final version of administrative decisions that impose liability on a party under the AML in a timely manner. Administrative decisions made public in accordance with law should not include contents involving what are legally commercial secrets.
China will ensure that, upon request from a party involved, the three AMEAs are to allow Chinese practicing lawyers to attend and participate in meetings with any of the three AMEAs. China will ensure that, upon request from the party involved, and after obtaining approval from the AMEA, which shall be granted as normal practice, the following persons may attend the meetings with any of the three AMEAs: (1) representatives of foreign law firm representative offices established in China, who are permitted to attend and advise on international law and practice and provide information on the impact of the Chinese legal environment, but not permitted to conduct activities that encompass Chinese legal affairs, and (2) foreign legal counsel practicing in other legal jurisdictions, who are permitted to attend and provide information on the subject transaction or conduct and information on the laws or international practices of the legal jurisdiction where they practice.
In the Blog post describing the JCCT, Commerce states:
Competition policy enforcement: The United States was able to address a significant concern for many foreign companies, which have expressed serious concern about insufficient predictability, fairness and transparency in the investigative processes of China’s Anti-Monopoly Law enforcement. The Chinese side agreed that, under normal circumstances, a foreign company in an Anti-Monopoly Law investigation would be permitted to have counsel present and to consult with them during proceedings. China also made several additional commitments, including to treat domestic and foreign companies equally and to provide increased transparency for investigated companies.
ANJIE LAW FIRM
On January 21, 2015, Michael Gu, a Chinese antitrust lawyer at the Anjie Law Firm in Beijing, sent the following e-mail with attached several articles on Chinese antitrust law:
I would like to share with you my latest articles on the recent PRC antitrust development.
MOFCOM Steps Up: Penalty Decisions Regarding Merger Control Published for the First Time (English) On 2 December 2014, for the first time ever, MOFCOM, the Chinese antitrust enforcement authority responsible for merger control, published three penalty decisions regarding concentration of undertakings. MOFCOM has announced that it was going to publicize its penalty decisions on undertakings which fail to file a notifiable merger as early as 21 March 2014, and now, here it comes. By publicizing these penalty decisions, MOFCOM conveys a clear message that it is enhancing the supervision and law enforcement on merger issues.
T&D MICROSOFT E-MAIL AND ARTICLE
On December 9th, John Ren of T&D Associates, a well-known, Chinese antitrust lawyer in Beijing, sent out an e-mail to all interested parties about the Chinese Ministry of Commerce’s (MOFCOM) recent decisions to hand out penalty decision in three cases. As John Ren states:
T&D has prepared an email to introduce three penalty decisions of MOFCOM to the clients. Please see below for your reference as well.
The Department of Treaty and Law (“DTL”) of the Ministry of Commerce of People’s Republic of China (“MOFCOM”) has published three Administrative Penalty Determination Letters on December 8, 2014 on its website to impose fines on Western Digital Corporation (“Western Digital”) and Tsinghua Unigroup Co., Ltd.(“Unigroup”) for their violation of antitrust law and regulations. Please find attached the English translations of the three documents prepared by T&D for your kind reference.
T&D would like to provide comments as below for your kind reference:
The penalties imposed on Western Digital are aimed at its violation of commitments in MOFCOM’s conditional approval notice in accordance with Article 15 of the Measures for the Review of Concentrations of Undertakings (“Measures“), while the penalty imposed on Unigroup is aimed at its violation of notification obligation in accordance with Article 21 of the Anti-Monopoly Law (“AML“) and Article 13 of the Interim Measures for Investigating and Handling Failure to Notify the Concentration of Undertakings According to Law (“Interim Measures“).
On March 20, 2014, MOFCOM has published an announcement about disclosing the penalty determination after May 1, 2014 on the undertakings who implemented a concentration without filing before MOFCOM when it is needed in accordance with law. And it is the first time MOFCOM has published its penalty determinations on undertakings who violate the restrictive conditions in a conditional approval notice (regarding the Western Digital Penalty) and on undertakings who fail to notify before MOFCOM when it was needed in accordance with the law (regarding the Unigroup Penalty).
These public penalty determinations show a trend of MOFCOM strengthening enforcement of antitrust law after May 1, 2014. In fact, there were several companies on which bureau-level penalties were imposed in the past by the Anti-Monopoly Bureau of MOFCOM and those penalties have not been disclosed to the public, while the disclosure of the administrative penalty this time by DTL of MOFCOM is a higher-level penalty which has a higher number of fine and needs consent from the minister-level to be implemented. Also, there will be other kinds of penalties if MOFCOM defines antitrust concerns during the review process in accordance with the AML, for example, to discontinue such concentrations, to dispose of undertakings’ shares or assets within a specific time limit, to transfer the business, to adopt other necessary measures to return to the status prior to the concentration, etc.
In accordance with Article 48 of the AML, MOFCOM can impose a fine of no more than 500,000 RMB on the undertakings. Although compared to the transaction value and the turnover of some large-scale companies, this is not a significant figure, MOFCOM’s act of disclosing the penalty determination will seriously hurt the reputation of the companies and effect the compliance issues of those companies in their future operations in China. Therefore, we sincerely suggest that companies take it more seriously when evaluating the necessity of notification and perform the obligation of notification if necessary.
As we can see, the penalty determinations aim at one foreign company and one domestic company, which shows a fair treatment and attitude by MOFCOM regarding antitrust law enforcement on both foreign and domestic companies.
T&D JANUARY REPORT
T&D also sent us their attached January report on Chinese competition law, TD Monthly Antitrust Report of January 2015. In that report, John Ren states in part:
Experts Predict Anti-Monopoly Law Enforcement will Normalize and Regulate this Year
January 5, 2015
Anti-monopoly law enforcement advanced triumphantly in 2014.
This year, many well-known foreign companies such as Qualcomm, Tetra Pak, Microsoft, Mercedes, etc. have faced investigation by China’s anti-monopoly law enforcement; Japanese auto parts enterprises received the biggest fines since the birth of the anti-monopoly law; rare anti-administrative monopoly investigation cases have also arisen on suspicions of discriminatorily charging road tolls, and the National Development and Reform Commission (NDRC) launched an anti-monopoly investigation on an administrative organ at the provincial level for the first time.
There are so many bright spots of “first times”, “largest,” and so on in 2014, leaving this year with a groundbreaking mark in the course of China’s anti-monopoly law enforcement.
This kind of strength has been accused of “selective law enforcement”, “lacking law enforcement transparency”, “lacking professionalism” and so on. As for the trend of the anti-monopoly law enforcement from now on, a majority of experts give prudent predictions. They think, in view of law enforcement difficulties, the strengthening of supervision by public opinion as well as the improvement on the Government Information Publicity System, anti-monopoly law enforcement in 2015 will become more prudent and precise, and strong law enforcement is likely to slow down.
Full bloom of anti-monopoly law enforcement
2014 is the year in which anti-monopoly law enforcement blossomed everywhere. Both for domestic enterprises and foreign enterprises, also both for natural monopolies and administrative monopolies, law enforcement and judicial organs all increased their engagement.
The anti-monopoly investigation on many multinational companies and foreign companies is a big characteristic of anti-monopoly in 2014. At the beginning of the New Year, the information of anti-monopoly law enforcement drew people’s attention. Qualcomm was under anti-monopoly investigation by the National Development and Reform Commission, and Tetra Pak and Microsoft were under an anti-monopoly investigation by China’s State Administration for Industry and Commerce.
On May 29, the National Development and Reform Commission issued the first anti-monopoly fine for 2014. Because price monopolistic behavior violated the anti-monopoly law, five eyeglass production enterprises including Essilor, Bausch & Lomb, etc., were fined more than 19 million Yuan.
Into the summer, the National Development and Reform Commission targeted the import auto industry as a goal for a new round of anti-monopoly enforcement. On August 4, the anti-monopoly investigation team of the National Development and Reform Commission abruptly investigated Mercedes’ Shanghai office. A number of Mercedes executives were summoned for questioning, and many office computers were inspected. After then, luxury cars such as Chrysler and Audi reduced their prices one after the other in response to China’s anti-monopoly investigations.
At the same time, domestic enterprises are also undergoing anti-monopoly investigations and anti-monopoly penalties. So far, it is clear to see through the “Anti-monopoly Cases Release Platform” that all 16 anti-monopoly cases punished by the anti-monopoly enforcement authority in the industry and commerce system target domestic enterprises.
The “restricting administrative monopoly” provision in the Anti-Monopoly law has been plagued by the “decoration” question. On September 13, the NDRC anti-monopoly bureau director Kun Lin, Xu announced at a news conference in the State Council Information Office (SCIO) that the stipulation by Hebei province, that the bus in its province will be charged half price of toll fees but out-of-province buses will be charged full price, is suspected of violating the anti-monopoly law, and it is under the National Development and Reform Commission’s investigation. Relevant government departments in Hebei province soon put forward an improvement scheme, restoring prices to the same price charged for local vehicles and vehicle from other places.
Repeatedly refreshed anti-monopoly fines
In 2014, the anti-monopoly enforcement authority continued the intensity of punishment in 2013; anti-monopoly fines reached new highs repeatedly.
In sweltering mid-August, the National Development and Reform Commission offered a 1.235 billion Yuan penalty to 12 Japanese auto parts companies, and so far this is the biggest anti-monopoly fine in China. It is understood that since 2013 the National Development and Reform Commission has issued 7 anti-monopoly fines, each of which reached more than ten million Yuan.
On September 2, in view of the fact that the insurance industry association of Zhejiang province organized 23 provincial property insurance companies to hold a meeting about car insurance premiums and they violated the anti-monopoly law regulation, the National Development and Reform Commission decided to fine the insurance industry association of Zhejiang province 500,000 Yuan, and 110 million Yuan on the 23 property insurance companies involved. This is by far the biggest anti-monopoly fine in the insurance industry.
The media exclaims that anti-monopoly fines are higher and higher. Industry experts remind the public that the focus for anti-monopoly enforcement should not just be placed on the amount of the fine. Professor Jian Zhong Shi, a modification and review panel expert for the Anti-Monopoly Law of the State Council Legislative Affairs Office and a director in the competition law research center of China University of Political Science and Law, thinks that even if a fine is a “sky-high price”, the purpose of law enforcement is not for huge fines, but for restoring the normal order of market competition.
Super-national treatment is closed
The intensive law enforcement on foreign-funded enterprises soon triggered suspicion. The European Union Chamber of Commerce in China raised objection to the anti-monopoly investigations in China, considering that they have been treated unfairly. Others argue that there is a double standard in China’s anti-monopoly law enforcement. While there is strict law enforcement on private enterprise and multinational companies, the law enforcement on state-owned enterprise is passive.
As for this point of view, Mengyan, an associate professor in the law school of Renmin University of China, thinks that the business activities of multinational companies and foreign-funded enterprises in China enjoy “Super-national Treatment” in the initial stages of reform and opening-up. When faced with anti-monopoly law enforcement practices in China, foreign-funded enterprises should consider more, keep a low-profile, and reflect on whether their own pricing behavior violates the anti-monopoly provision.
Since the initiation of China’s anti-monopoly law in August, 2008, the National Development and Reform Commission and the State Administration of Industry and Commerce did not “exert force” until the past two years. As for this point, Huangyong, deputy supervisor of the expert consultation group for the Anti-monopoly Commission of the State Council and professor in the law school of University of International Business and Economics, expresses that this phenomenon may be explained as that: For the new anti-monopoly law, law enforcement authorities are willing to set aside a period of time for market players to correct themselves before as the authorities themselves also need some time to learn professional knowledge and accumulate law enforcement experience. However, after six years, law enforcement authorities today both have the intention and the capability to fully open anti-monopoly law enforcement. To some extent, law enforcement authorities are cleaning “historical debts”. Law enforcement work is becoming normality.
Law enforcement transparency awaits improvement
The transparency of law enforcement has become a focus point for the general question in the foreign press on China’s anti-monopoly law enforcement.
On September 2, 2014, the National Development and Reform Commission announced its 0.11 billion Yuan anti-monopoly “ticket” on the insurance industry in Zhejiang province and published its full written decision of administrative penalty at the same time. However, the scrupulous reader can find that this written decision of administrative penalty has been made by the National Development and Reform Commission as early as the end of 2013, so why is it not published until today? Should the written decision of administrative penalty for anti-monopoly law enforcement be published timely?
Meanwhile, the publication of written decisions of administrative penalties for anti-monopoly law enforcement lacks unified legislation. This becomes another question raising suspicion of foreigners regarding anti-monopoly law enforcement transparency.
Insiders generally consider that anti-monopoly law enforcement will become normality from now on. However, considering law enforcement difficulties, the strengthening of the supervision of public opinions as well as the improvement on Government Information Publicity System, anti-monopoly law enforcement in 2015 will become more prudent and precise; the strong law enforcement is likely to slow down.
Professor Huangyong thinks that the focus for anti-monopoly law enforcement from now on should return to the legislative intention for the anti-monopoly law, that is to say, to safeguard a healthy market competition order. From now on, anti-monopoly cases will be more complex and involve more frontier domains. This puts forward a higher demand for the professionalism of anti-monopoly law enforcement. Thus, law enforcement authorities in our country should be well prepared and meet the challenge actively.
PRC AUDIT FIRMS REACH SETTLEMENT WITH SEC
On February 8, 2015, Dorsey Partner, Tom Gorman, who used to work at the SEC Enforcement division, posted the following article about PRC Based Audit Firms and their problems at the US Securities and Exchange Commission (“SEC”) on his blog on securities litigation. In that post Tom Gorman states:
SEC – PRC Based Audit Firms Reach A Settlement
The SEC and the PRC based affiliates of five major accounting firms entered into a settlement of proceedings initiated over the failure to produce audit work papers for issuers with substantial operations in China. The settlement, which provides a mechanism for governing future productions, represents a significant step toward a resolution of these issues which ultimately stem from the intersection of far different cultures and regulatory systems.
In the Matter of BDO China Dahua CPA Co., Ltd., Adm. Proc. File No. 3-15116 (Dec. 3, 2012) is a proceeding which named as Respondents the PRC based affiliates of five major accounting firms: BDO China, Ernst & Young Hau Ming LLP, KPMG Huazhen (Special General Partnership), Deloitte Touche Tohmatsu Certified Public Accountants Ltd. and PricewaterhouseCoopers Zhong Tian CPAs Ltd.
The proceeding was based on Rule 102(e)(1)(iii) which permits the Commission to temporarily or permanently deny any person found to have willfully violated or aided and abetted the violation of the Federal securities laws. Section 106 of the Sarbanes-Oxley Act of 2002, as amended by the Dodd-Frank Act, was alleged to have been violated. That Section provides that a PCAOB registered firm that audits the financial statements of a U.S. issuer consents to produce its work papers on request by either the Board or the SEC.
In this matter, each Respondent is registered with the PCAOB. Each Respondent is alleged to have been engaged to audit the financial statements of a PRC based U.S. issuer. Each Respondent was served with a request by the Commission to produce all of its audit work papers for a designated period. Each Respondent declined, at least in part, based on their understanding that the law of the PRC precluded the production. The Order directed that a hearing be held before an ALJ to hear evidence.
Following the hearing the Law Judge issued an initial decision on January 22, 2014. In that decision, much of which was redacted, the Law Judge found that each firm should be censured. In addition, each firm, except BDO, was suspended from practicing before the SEC for six months. The Commission then granted petitions for review filed by Deloitte, EY, KPMG and PwC as well as the Division. See also In the Matter of Deloitte Touche Tohmatsu Certified Public Accountants Ltd., Adm. Proc. File No. 3-14872 (May 9, 2012)(subpoena enforcement action against the audit firm related to a different PRC based client).
BDO China, Deloitte, EY, KPMG and PwC settled with the SEC, admitting certain facts which are the predicate of the proceedings as set forth in Annex A. There were no admissions that the Federal securities or other laws were violated.
Under the terms of the settlement each Respondent is censured and will pay a penalty of $500,000. The Order provides for a stay of the current proceedings for a period of four years. The continuation of the stay is contingent on the implementation of certain undertakings tied to the execution of future requests for work papers. Specifically, the undertakings provide that in the future the SEC will make requests for assistance to the CSRC under international sharing mechanisms which include the
IOSCO MMOU. At the same time the staff will make a request to one of the settling Respondents through its designated U.S. agent. The Respondent to whom the request is directed will provide the staff with a certification that the materials have been furnished to the CSRC, along with a log of any documents withheld based on privilege or PRC law provisions which include state secrets. The undertakings provide time limits for the completion of these tasks.
If the Respondent to whom the request is directed fails to provide the required certificates within the specified time periods the Commission can, under Rule 102(e), enter a partial bar as to that Respondent. That bar will have a term of six months and will preclude the firm from issuing an audit report or otherwise serving as a principal auditor for any issuer. If two such bars are ordered they shall run consecutively. There is no appeal from the entry of this order.
Alternatively, if the staff determines that the production made to CSRC is materially incomplete, after an opportunity to cure, a summary proceeding may be instituted before a Law Judge. The Law Judge will have the authority to issue a partial bar, a censure and a penalty of up to $75,000.
Finally, if the staff determines that a Respondent has provided materially deficient responses, there has been substantial delay, material has been withheld without justification under U.S. law and a summary proceeding has not been instituted, it may request that the Commission terminate the stay and restart the proceedings.
The settlement of these proceedings is one step in what has become a long and difficult process regarding the entry of PRC issuers into the U.S. and world capital markets. Issuers based in, or with substantial operations in the PRC, have sought entry into the U.S. and world capital markets.
Bringing those firms to markets which are heavily regulated and based on disclosure, however, represents a clash of culture and regulatory regimes.
Here that clash has been evident from the first. While SOX requires Board registered auditors to agree to produce work papers and subjects them to inspections, at the time of registration the firms involved in these proceedings did not provide the Consent to Cooperate. Nevertheless, the Board permitted their registration while reiterating its obligations.
As these proceedings demonstrate, effectuating the requirement that registered firms produce work papers has been difficult for the SEC and the Board. At the same time the Commission and Board have exercised restraint while negotiating resolutions of the issues involved here. For example, after significant efforts the Board was able to enter into an MOU with the CSRC regarding cooperation and the production of work papers. The materials in the underlying actions were produced.
Yet an agreement on inspection, while under discussion, has been elusive.
Viewed against this backdrop, the settlements here are significant. The firms were sanctioned, but not barred from appearing and practicing before the SEC. Rather, an additional mechanism for facilitating future requests was arranged under the threat of additional and more significant sanctions. The ultimate success of the process is, however, tied to the MOU negotiated by Board since the settlement only calls for delivery of the materials to the CSRC, not to the SEC. Recent productions by that agency suggest that in the future there will be more cooperation and transparency regarding issuers operating in the PRC. It may well be that the time has come for issuers operating in the PRC to enter the world capital markets.
See also Tom Gorman’s blog for more information about this case http://www.secactions.com/sec-prc-based-audit-firms-reach-a-settlement/
FOREIGN CORRUPT PRACTICES ACT (“FCPA”)
On December 15, 2014, the Justice Department announced that Avon China had pled guilty to violating the foreign corrupt practices Act by concealing more than $8 million in gifts to Chinese officials. As the Justice Department stated in an announcement, which will be attached to my blog:
Avon Products Inc. and Avon Products (China) Co. Ltd. Will Pay More than $135 Million in Criminal and Regulatory Penalties
Avon Products (China) Co. Ltd. (Avon China), a wholly owned subsidiary of the New York-based cosmetics company, Avon Products Inc. (Avon), pleaded guilty today to conspiring to violate the accounting provisions of the Foreign Corrupt Practices Act (FCPA) to conceal more than $8 million in gifts, cash and non-business meals, travel and entertainment it gave to Chinese government officials in order to obtain and retain business benefits for Avon China. Avon China and Avon admitted the improper accounting and payments and Avon entered into a deferred prosecution agreement to resolve the investigation. In a proceeding today before United States District Judge George B. Daniels, the criminal Informations were filed against Avon and Avon China, and Avon China entered its guilty plea and was sentenced.
Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division, U.S. Attorney Preet Bharara of the Southern District of New York and Assistant Director in Charge Andrew G. McCabe of the FBI’s Washington Field Office made the announcement.
“Companies that cook their books to hide improper payments will face criminal penalties, as Avon China’s guilty plea demonstrates,” said Assistant Attorney General Caldwell. “Public companies that discover bribes paid to foreign officials, fail to stop them, and cover them up do so at their own peril.”
“For years in China it was ‘Avon calling,’ as Avon bestowed millions of dollars in gifts and other things on Chinese government officials in return for business benefits,” said U.S. Attorney Bharara. “Avon China was in the door-to-door influence-peddling business, and for years its corporate parent, rather than putting an end to the practice, conspired to cover it up. Avon has now agreed to adopt rigorous internal controls and to the appointment of a monitor to ensure that reforms are instituted and maintained.”
“When corporations knowingly engage in bribery in order to obtain and retain contracts, it disrupts the level playing field to which all businesses are entitled,” said FBI Assistant Director in Charge McCabe.
“Companies who attempt to advance their businesses through foreign bribery should be on notice. The FBI, with our law enforcement partners, is continuing to push this unacceptable practice out of the business playbook by investigating companies who ignore the law.”
Avon China pleaded guilty to a criminal information filed today in the U.S. District Court for the Southern District of New York charging the company with conspiring to violate the books and records provisions of the FCPA. Avon, the parent company, entered into a deferred prosecution agreement today and admitted its criminal conduct, including its role in the conspiracy and its failure to implement internal controls.
Pursuant to the deferred prosecution agreement, the department filed a criminal information charging Avon with conspiring to violate the books and records provisions of the FCPA and violating the internal controls provisions of the FCPA. In total, the Avon entities will pay $67,648,000 in criminal penalties. Avon also agreed to implement rigorous internal controls, cooperate fully with the department and retain a compliance monitor for at least 18 months.
Avon settled a related FCPA matter with the U.S. Securities and Exchange Commission (SEC) today, and will pay an additional $67,365,013 in disgorgement and prejudgment interest, bringing the total amount of U.S. criminal and regulatory penalties paid by Avon and Avon China to $135,013,013.
According to the companies’ admissions, from at least 2004 through 2008, Avon and Avon China conspired to falsify Avon’s books and records by falsely describing the nature and purpose of certain Avon China transactions. Specifically, the companies sought to disguise over $8 million in gifts, cash and non-business travel, meals and entertainment that Avon China executives and employees gave to government officials in China in order to obtain and retain business benefits for Avon China. Avon China attempted to disguise the payments and benefits through various means, including falsely describing the nature or purpose of, or participants associated with such expenses, and falsely recording payments to a third party intermediary as payments for legitimate consulting services.
The companies also admitted that in late 2005 Avon learned that Avon China was routinely providing things of value to Chinese government officials and failing to properly document them. Instead of ensuring the practice was halted, fixing the false books and records, disciplining the culpable individuals, and implementing appropriate controls to address this problem, the companies took steps to conceal the conduct, despite knowing that Avon China’s books and records, and ultimately Avon’s books and records, would continue to be inaccurate.
Court filings acknowledge Avon’s cooperation with the department, including conducting an extensive internal investigation, voluntarily making U.S. and foreign employees available for interviews, and collecting, analyzing, translating and organizing voluminous evidence.
On December 15, 2014 Massachusetts-based scientific instruments manufacturer Bruker Corp. agreed to pay $2.4 million to settle the U.S. Securities and Exchange Commission’s charges that it violated the Foreign Corrupt Practices Act by bribing Chinese government officials in an effort to win sales contracts.
On December 2, 2014, Wayne Jewell filed a class action securities case against MOL Global, Inc., Tan Sri Dato, Seri Vincent Tan, Ganesh Jumar Bangah, Allan Sai Wah Wong, Eric He, Noah J. Doyle, Citigroup Global Markets Inc., Deutchsche Bank Securities Inc., UBS Securities LLC and CIMB Securities (Singapore) PTD, Ltd. JEWELL MOL GLOBAL
On December 11, 2014, Chao Lu filed a class action securities case against Jumei International Holding Ltd, Leo Ou Chen, Yusen Dai, Mona Meng Gao, Yunsheng Zheng, Judge Paijley, Steve Yue Ji, Keyi Chen, Goldman Sachs (Asia) LLC, Credit Suize Securities (USA) llc, J.P. Morgan Securities LLC, China Renaissance Securities (Hong Kong) Ltd, Piper Jaffray & Co and Oppenheimer & Co. Inc. JUMEI BROCK COMPLAINT
On December 31, 2014, Aram J. Pehlivian filed a class action securities case against China Gerui Advanced Materials Group Ltd, Mingwang Lu, Edward Meng, Yi Lu, Harry Edelson, J. P. Huang, Kwok Keung Wong, Yunlong Wang, and Maotong Xu. CHINA GERUI
On January 9, 2015, Steven Bocker, Sadie LaBerge and Jay Wise filed a class action securities case against Deer Consumer Products Inc., Yuehua Xie, Zongshu Nie, Arnold Staloff, Qi Hua Xu, Yongmei Wang, Man Wai James Chu, Walter Zhao, Edward Hua, Bill Ying he, Goldman Kurland Mohidin LLP, and Ahmed Mohidin. DEER SECURITIES
On January 14, 2015, Paul Fila filed a class action securities case against Pingtan Marine Enterprise Ltd., Xinrong Zhuo, Roy Yu, Jin Shi and Xuesong Song. PINGTAN MARINE Complaint
On February 2, 2015, Chao Sun filed a class action securities case against Daqing Han, Xiaoli Yu, Hong Li, Ming Li, Lian Zhu, Guanghui Cheng, Guobin Pan, Guangjun Lu, Yuanpin He, Mazars CPA Ltd, Mazars Scrl, Weisermazars LLP, and Telestone Technologies Corp. CHAO SUN TELESTONE
On February 4, 2015, Ming Huang filed a class action securities case against Alibaba Group Holding Ltd, Jack Yun Ma, Joseph C. Tsai, Jonathan Zhaoxi Lu and Maggie Wei Wu. MING HUANG ALIBABA
On February 16, 2015, Myrtle Chao filed a class action securities case against Alibaba. MYTRLE CHAO ALIBABA