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How The Import Alliance Can Help Calm the Waters August 7, 2014 View the Blog at U.S. China Trade War Facing.

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Presentation on theme: "How The Import Alliance Can Help Calm the Waters August 7, 2014 View the Blog at U.S. China Trade War Facing."— Presentation transcript:

1 How The Import Alliance Can Help Calm the Waters August 7, 2014 View the Blog at U.S. China Trade War Facing the Perfect Storm

2 Introductions Bill Perry is a Partner and International Trade Lawyer in the Seattle office of Dorsey & Whitney LLP and author of the blog, He previously served as an attorney in the Office of General Counsel, U.S. International Trade Commission, and the Office of Chief Counsel and Office of Antidumping Investigations, U.S. Commerce Department. Since 1991, Mr. Perry has won more than fifty antidumping and countervailing duty cases for Chinese producers/exporters and U.S. importers. For more than twenty years, Mr. Perry has been involved in trade litigation between the U.S. and China and has seen the impact of the Trade War up close. 2 Frank Hong, a Partner in Dorsey’s Shanghai office, focuses on advising international companies on their direct investments into China as well as emerging Chinese multinational corporations on outbound investments and other aspects of doing business abroad, especially in the United States. Mr. Hong has substantial experience in cross-border M&A, intellectual property, international trade and Customs (both in China and the United States). Trained as a commercial litigator during his first three years of practice in the U.S., Mr. Hong has always been involved in the practice of dispute resolution on both sides of the Pacific. William Perry Partner – Seattle Dorsey & Whitney LLP (206) 903-8894 Frank S. Hong Partner – Shanghai Dorsey & Whitney LLP (86-21) 6135-6147

3 U.S. and China Have a Trade War Cases are being filed in numerous legal areas: –Trade (antidumping and countervailing duty) –Customs –Intellectual Property/337 –Antitrust –Securities –Products Liability –Banking… and more The Trade War used to be small, but it is expanding and getting bigger Trade Wars may be good for lawyers, but they are bad for countries 3

4 Trade Cases Increase in the U.S. and China In the United States: –121 outstanding antidumping / countervailing orders against Chinese products covering food, consumer, and raw material products wiping out billions of dollars in Chinese imports into the United States –New antidumping and countervailing cases: Solar Cells/Solar Products, Tires, Wind Towers and Steel –Cases more difficult for China because of multiple surrogate countries: Ukraine, Indonesia, Columbia, South Africa, Thailand, Philippines, Bulgaria and other countries –Concentric Circles In China: –Antidumping and countervailing duty cases against Chicken, Polysilicon, automobiles 4

5 Dueling WTO Cases China WTO case—Countervailing duty cases –Treat state-owned companies as governmental entities –Fail to look at market benchmark in China –Not much will change for China without a change in the non-market economy status U.S. WTO Case—Chicken –46.6% “weight-based cost of production” July 18, 2014, MOFCOM Minister Hucheng Gao: “The economic and trade relations between China and the United States are the ballast stone and engine of overall China-U.S. ties.” 5

6 Customs—Transshipment Problems Transshipment: Process of shipping Chinese products through another country to avoid trade orders –Part of Trans Pacific Partnership “TPP” Negotiations with Malaysia –Transshipment is customs fraud and a crime –Chinese exporters and U.S. importers are going to U.S. prisons because of Transshipment False Claims Act case—triple damages Congress going crazy—ENFORCE Act 6

7 U.S. Patent 337 Cases There are currently 91 ongoing Section 337 patent and IP cases and more than 100 orders –Intellectual property cases related to mobile phones, biotech products, semiconductor chips, beds, magnets, birthing simulators, cars, tires, fireplaces, tractors and other products There are at least ten Section 337 cases for every one antidumping case Example: Ninestar Technology Co – $11 million record penalty Patent cases being filed every month, especially against Chinese tech companies Huawei and ZTE 7

8 Products Liability Chinese products account for 60% of all recalls in the United States The number of those products being recalled has doubled over the last five years Provoked numerous Products Liability cases Most famous – Drywall Case: –On July 17, 2014, Taishan Gypsum barred from doing business in the U.S. by a Louisiana Federal Judge until it shows up in court to answer questions about its failure to pay a $2.7 million default judgment in litigation over defective drywall, and held in both civil and criminal contempt Result: Attack Chinese banks in the United States to collect default judgments 8

9 Antitrust China Antitrust: U.S. Antitrust: –Vitamin C price-fixing $153 million penalty, 2nd Circuit Appeal –But on July 15, 2014, in United States v. Hsiung and Au Optronics Corp. (“AUO”), the 9th Circuit affirmed the criminal price-fixing convictions of the Taiwan defendants, including the $500 million fine of AUO, an LCD manufacturer, because the cartel affected U.S. commerce –On July 16, 2014, in the Vitamin C case, Plaintiffs argued that the recent 9th Circuit ruling supports their claims in the Vitamin C case against the Chinese companies 9

10 Securities Dozens of Securities class action cases are currently being litigated against Chinese companies In 2013, nearly 50% of all U.S. securities cases against non-U.S. companies were against China SEC actions against Chinese companies and audit companies Dorsey Victory: Great Dynasty International Financial Holdings Ltd. v. Li, not only dismissal but damages from lawyers who sued the Chinese company 10

11 SEC Cases Against China In the Matter of Longtop Financial Technologies Ltd. (Deloitte Shanghai) (Attack on Auditor of Chinese company) SEC v. China Natural Gas, Inc. (Self-dealing—China CEO) SEC v. SinoTech Energy Ltd. (Financial fraud) SEC v. Li (Financial fraud) SEC v. Auto China International Ltd. (Stock manipulation) SEC v. Ming Zhao (Misuse of assets) SEC v. All Know Holdings Ltd. (Insider trading) SEC v. Yang (Insider trading) FCPA 11

12 Banking Single Entity Doctrine: –Go after damages from defaulting Chinese companies by attacking Chinese banks Bank of China case 12

13 U.S. Judgments Not Enforceable in China But Companies Have Grown Up Before: “Hide in China and no one will touch us” Today: Chinese companies have grown up –Subsidiaries and bank accounts across the world –Assets in Hong Kong, Taiwan, Singapore, U.S. and Europe where U.S. Judgments are enforceable Trial lawyers around the world see Chinese companies as potential targets 13

14 Chinese Companies: Big Fat Targets Example: Attorney David Boies Because of this way of thinking, Plaintiff’s lawyers see Chinese companies as Big Fat Targets for litigation Because of the Chinese way, Chinese companies are truly facing a perfect storm of U.S. litigation—a wave 100 feet high as they move out of China U.S. litigation wave triggering wave of Chinese litigation against U.S. companies 14

15 All These Cases are Interrelated FTC Chairman Ramirez: Chinese using industrial policy and protectionism in implementing Chinese AML U.S. antitrust cases against China triggered by U.S. antidumping cases Commerce Department’s 30 years of protectionism Weapon—Chinese AML Part of the Trade War U.S. Congressional perception problem—No other country has thrown rocks back at the United States in former trade wars Not Japan, Taiwan, or South Korea 15

16 China WTO Agreement—The Fuse Section 15 of the China WTO Accession Agreement: “15. Price Comparability in Determining Subsidies and Dumping… (a)(ii) The importing WTO Member may use a methodology that is not based on a strict comparison with domestic prices or costs in China… (d) In any event, the provisions of subparagraph (a)(ii) shall expire 15 years after the date of accession.” Section 15 came from the U.S.-China WTO Agreement and a U.S. demand 16

17 2016: The Year the Trade War Could Explode December 11, 2001: China acceded to the WTO December 11, 2016: When Section 15(d) should kick in But not according to U.S. Government officials… –Two U.S. Government officials in a position to know stated, off the record: Section 15(d) is “just a treaty” and not in the U.S. Antidumping and Countervailing Duty law –Therefore, the U.S. is not under any obligation to follow the Agreement Reminiscent of treaties negotiated with U.S. native American Indians –“White man speak with forked tongue” One of the same U.S. government officials has stated that what the Chinese government wants is respect 30 years of treating China as a second class country is not respect 17

18 U.S. Actions Hurt U.S. Importers U.S. trade policies are a problem for Chinese companies, but also greatly impact U.S. importers U.S. importers are liable retroactively for antidumping and countervailing duties, not the Chinese exporters But Chinese companies are now the U.S. importers of record Example: Solar Cells 18

19 Impact on U.S. Importers Antidumping and countervailing duties –In Solar Cells case, Critical Circumstances: $100 Million –In Wooden Bedroom Furniture, U.S. importers’ liability: $500 million to $1 billion China treated worse than Iran Non-market economy Chinese companies cannot know whether they are dumping If Chinese companies cannot know whether they are dumping, how can U.S. importers know? 19

20 Only U.S. Companies Can Change the Discussion U.S. companies must be responsible for changing the discussion in Washington DC The Chinese strategy of ignoring the U.S. Importers and Chinese companies doing their own thing in these cases is not working Chinese companies can help find the U.S. importers and end users and get their help We need your help, the help of the Chinese Chambers and the Chinese exporters, to locate the U.S. importers affected by these actions 20

21 Import Alliance for America Dorsey & Whitney and APCO are working together to establish a lobbying coalition of U.S. importers and end users of Chinese goods In September 2013, ten U.S. importers agreed to form the Import Alliance for America, including importers of housewares, steel, chemicals, and wood products Goal: Put pressure on the U.S. Government to end the expansion of the U.S. China Trade War and the antidumping and countervailing duty laws against China To make this work, we need more U.S. companies 21

22 Objectives of the Import Alliance Overall: To educate the U.S. Congress and Administration on the damaging effects of the U.S. China trade war, especially U.S. antidumping and countervailing duty laws, on U.S. importers and U.S. downstream industries. Four major objectives: 1.Achieve Market Economy treatment for China in 2016 as provided in the U.S. China WTO Agreement 2.Eliminate retroactive liability for U.S. importers 3.Apply a public interest test in antidumping and countervailing duty cases 4.Establish standing for U.S. end user companies 22

23 Meetings with U.S. Congressmen Congressmen have agreed to meet importers to listen to their grievances regarding the U.S. antidumping and countervailing duty laws –Rodney Frelinghuysen of New Jersey –Alan Lowenthal of California (tentative) Ask Chinese companies to contact their U.S. import companies to seek participation in the Import Alliance Only U.S. importers and end user companies can change the dialogue and policy in Washington DC 23

24 If China Becomes a Market Economy… Antidumping and countervailing duty cases will not go away, but the U.S. Department of Commerce will be forced to use real numbers, meaning actual prices and costs in China If the Chinese company does not keep track of its own prices and costs in China, it will lose the case Chinese company can go in the front door, do the antidumping investigation, use computer programs to keep antidumping rates low, and continue to ship to the United States if it stops dumping No longer need to use the back door and “Transship around” antidumping and countervailing duty orders 24

25 President Reagan Predicted the Trade War On June 28, 1986, in his Radio Address to the Nation on International Trade, President Ronald Reagan predicted the U.S. China trade war: “Sometimes foreign governments adopt unfair tariffs or quotas and subsidize their own industries or take other actions that give firms an unfair competitive edge over our own businesses. On those occasions, it's been very important for the United States to respond effectively, and our administration hasn't hesitated to act quickly and decisively… But I think you all know the inherent danger here. A foreign government raises an unfair barrier; the United States Government is forced to respond. Then the foreign government retaliates; then we respond, and so on. The pattern is exactly the one you see in those pie fights in the old Hollywood comedies: Everything and everybody just gets messier and messier. The difference here is that it's not funny. It's tragic. Protectionism becomes destructionism; it costs jobs.” 25

26 For More Information… 26 Contact: William Perry Dorsey & Whitney LLP (206) 903-8894 Frank S. Hong Dorsey & Whitney LLP (86-21) 6135-6147 Don Bonker APCO Worldwide 202-718-1019 Ron Herman Vice President and Treasurer of the Import Alliance IMPORT ALLIANCE for AMERICA

27 Thanks for the great support of COSCO. 27

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