American Trade & Manufacturing Blog

Wiley Rein Submits Comments on Chinese Intellectual Property and Innovation Policies

Posted in Trade Policy

On September 28, 2017, Wiley Rein submitted comments to the U.S. Trade Representative on China’s unreasonable and discriminatory intellectual property and innovation policies and their negative impact on U.S. companies, workers, and the overall economy.  The comments were submitted in response to USTR’s investigation under Section 301 of the Trade Act of 1974 regarding “China’s acts, policies, and practices related to technology transfer, intellectual property, and innovation.”  The investigation will determine whether these practices are actionable under Section 301 of that statute, which authorizes USTR to retaliate unilaterally against certain unreasonable or unjustifiable foreign trade practices.

Wiley Rein’s comments describe how the Chinese government uses a number of tools to unfairly acquire U.S. companies’ intellectual property and innovation, and create competitive advantages for Chinese companies.  These include, among others:

  • either shutting U.S. companies out of China’s domestic market, or requiring them as a condition of entry to hand over their valuable intellectual property to the Chinese government or Chinese companies;
  • directing Chinese companies and providing them financial support to acquire U.S. companies for the purposes of obtaining their innovative technology;
  • engaging or sponsoring the theft of intellectual property and trade secrets; and
  • abusing anticompetition laws to extract concessions from U.S. companies.

These Chinese government activities directly harm U.S. companies and their workers by stealing their technology, decreasing their revenue, and preventing them from further investment and innovation.  Moreover, these actions threaten to undermine the United States’ technological base and put the competitiveness of the entire U.S. economy at risk.  As a result, Wiley Rein strongly urged USTR to fully use all authorities granted by Section 301 to obtain the elimination of China’s activities.

The next steps of the investigation will be a public hearing on October 10, 2017, and rebuttal comments may be submitted on October 20, 2017.

CBP Announces Critical Interim Measures in New Investigations Against Evasion of the Antidumping Order on Chinese Diamond Sawblades

Posted in Antidumping, Customs Law, Trade Remedies

On Friday, September 22, U.S. Customs and Border Protection (CBP) announced interim measures in a consolidated investigation under the Enforce and Protect Act of 2015 (EAPA), against U.S. importers of Chinese sawblades Power Tek Tool, Inc. (Power Tek) and Lyke Industrial Tool, LLC (Lyke). CBP has a “reasonable suspicion” that Power Tek and Lyke are evading the antidumping duty order on Diamond Sawblades from China by falsely classifying imports of Chinese sawblades to the United States as millstone products, which are not subject to any antidumping duty order. Wiley Rein represents the Diamond Sawblades Manufacturers’ Coalition (DSMC), an ad hoc coalition of U.S. manufacturers that submitted the allegations that led to this consolidated investigation.

On July 18, 2017, CBP initiated the two investigations that have now been consolidated, based on evidence submitted by DSMC that Lyke, a successor to Power Tek, had strangely stopped importing diamond sawblades and began importing “millstone diamond saw segments” when the dumping margin on sawblades increased from 2.34% to 29.76%. Among other evidence, CBP also considered that Lyke’s U.S. customer of the new “millstone segments” was a reseller of only fully assembled sawblades and had no ability to manufacture diamond sawblades from these supposed segments.

In addition, following initiation of the investigations, CBP conducted a cargo exam of an entry by Power Tek and discovered diamond sawblades that had been misclassified in the entry documentation as millstone product. In light of this and DSMC’s allegations, CBP has now imposed interim measures that include, but are not limited to:

  • Requiring that misclassified entries be rated-adjusted to reflect that they are indeed subject to the antidumping order;
  • Requiring that entries be made as “live entries,” meaning that entry documents and duties are required before the merchandise is released into the U.S. market; and
  • Suspending liquidation on entries dated on or after the July 18, 2017 initiation.

Like the recent investigation against Diamond Tools Technology (DTT), this consolidated investigation and its corresponding interim measures are a significant development for the U.S. diamond sawblades industry.

Treasury Imposes New Sanctions on Venezuela

Posted in Economic Sanctions

On August 24, 2017, President Trump signed Executive Order 13808 imposing new sanctions against Venezuela largely in response to the political situation in the country, including the “establishment of an illegitimate Constituent Assembly, which has usurped the power of the democratically elected National Assembly and other branches of the Government of Venezuela.”   The new sanctions prohibit U.S. persons and those within the United States from engaging in transactions involving the following:

  • New debt with a maturity of greater than 90 days of Petroleos de Venezuela, S.A. (“PdVSA”), Venezuela’s state-owned oil company;
  • New debt with a maturity of greater than 30 days, or new equity, of the Government of Venezuela, other than debt of PdVSA as defined above;
  • Bonds issued by the Government of Venezuela prior to August 24, 2017;
  • Dividend payments or other distributions of profits to the Venezuelan Government from any entity owned or controlled, directly or indirectly, by the Venezuelan Government; and
  • The purchase, directly or indirectly, of securities from the Government of Venezuela, other than security qualifying as new debt with a maturity of less than or equal to 90 days (for PdVSA) or 30 days (for the Government of Venezuela).

The prohibitions above apply to the Government of Venezuela, its property and interests in property, including entities owned 50 percent or more by the Government of Venezuela.

The U.S. Department of the Treasury (“Treasury”), which administers U.S. financial sanctions, simultaneously issued four general licenses, authorizing the wind down of certain transactions now prohibited, as indicated below:

  • General License 1 authorizes U.S. persons to wind down contracts or other agreements now prohibited under EO 13808 that were in effect prior to August 25, 2017. Such winding down transactions are authorizing through September 24, 2017.
  • General License 2 authorizes transactions in which the only Venezuelan Government entity involved is CITGO Holding, Inc., or any of its subsidiaries.
  • General License 3 authorizes transactions related to, the provision of financing for, and other dealings in specified bonds included on the List of Authorized Venezuelan-Related Bonds.
  • General License 4 authorizes all transactions related to, the provision of financing for, and other dealings in new debt related to the exportation or reexportation, from the United States or by a U.S. person, wherever located, of agricultural commodities, medicine, medical devices, or replacement parts and components for medical devices to Venezuela or to persons in third countries purchasing specifically for resale to Venezuela, provided that all such exports or reexports are authorized by the Department of Commerce.

Notably, the Venezuelan Government has not been added to Treasury’s list of Specially Designated Nationals and Blocked Persons.  Thus, while U.S. companies and financial institutions can continue to do business with Government of Venezuela entities, they should exercise heighted due diligence when doing so.

CBP Initiates Investigation and Takes Critical Interim Measures Against Evasion of Antidumping Order on Chinese Diamond Sawblades

Posted in Antidumping, Customs Law, Trade Remedies

U.S. Customs and Border Protection (CBP) under the Enforce and Protect Act of 2015 (EAPA) recently notified on the initiation of an investigation and adoption of interim measures against Diamond Tools Technology (DTT), finding that there is a “reasonable suspicion” that DTT is evading the antidumping duty order on Diamond Sawblades from China by transshipping Chinese sawblades to the United States through Thailand. Wiley Rein represents the Diamond Sawblades Manufacturers’ Coalition (DSMC), an ad hoc coalition of U.S. manufacturers, that submitted the allegation that led to this investigation.

As part of its investigation, CBP officials earlier this summer traveled to DTT’s facility in Thailand, where the agency encountered refusals by company officials to inspect certain areas of the facility, denials on the existence of certain areas, sawblades that did not appear to be packaged in the facility, and contradictions on how much the facility can produce. This visit, coupled with DSMC’s earlier allegations, led CBP to find a “reasonable suspicion” of evasion of the antidumping order against Chinese sawblades, and impose interim measures against DTT’s imports. Specifically, DTT’s entries from Thailand have been affected as follows:

  • Entries are rated-adjusted to reflect that they are indeed subject to the antidumping order;
  • Cash deposits are owed on these entries;
  • Entries are now made as “live entries,” meaning that entry documents and duties are required before CBP can release the merchandise into the U.S. market;
  • Entries whose documents do not comport with requirements under the interim measures must be refiled;
  • Liquidation is suspended on entries dated March 22, 2017 and on;
  • To the extent possible, liquidated entries will be reliquidated at the adjusted rate; and
  • The continuous bond applying to DTT’s entries is being evaluated for sufficiency.

This investigation covers entries made from March 1, 2016 through the pendency of the investigation. The development of this case, as CBP’s recently issued first affirmative determination of evasion on steel wire garment hangers, signals a critical step towards the effective enforcement of antidumping and countervailing duty orders, protecting American industries and American jobs from unfair trade.

CBP is expected to deliver its final determination in early 2018.

U.S. Customs and Border Protection Issues First Final Affirmative Determination of Evasion Pursuant to the Enforce and Protect Act

Posted in Antidumping

On August 14, 2017, U.S. Customs and Border Protection (CBP) issued its first final affirmative determination of evasion pursuant to the Enforce and Protect Act (EAPA).  The EAPA was passed as part of the Trade Facilitation and Trade Enforcement Act of 2015 and established a formal process for CBP to investigate allegations of evasion of antidumping and countervailing duty orders.  CBP determined that substantial evidence demonstrates that certain imports of steel wire garment hangers from the People’s Republic of China (China), which are covered by an antidumping duty (AD) order, entered the United States through evasion.

In response to an allegation filed by M&B Metal Products Company, Inc., CBP initiated an investigation on October 11, 2017 into Eastern Trading NY, Inc.’s (Eastern Trading) imports of steel wire garment hangers from China, noting that the allegation reasonably suggested that Eastern Trading imported hangers from China that had been transshipped through Thailand and failed to pay the AD cash deposits in place for the merchandise.  On December 13, 2016, CBP issued a notice of initiation and notified interested parties of CBP’s decision to take interim measures based on reasonable suspicion that Eastern Trading did enter covered merchandise into the United States through evasion.

CBP determined that there is substantial evidence that Eastern Trading entered covered merchandise into the United States that had been transshipped through Thailand.  For instance, CBP found that:

  • The on-site visit of the facility of Eastern Trading’s reported supplier, Everbright Clothes Hanger (Thailand) Co., Ltd. (“Everbright”) in Thailand as well as Everbright’s financial statements, indicates that Everbright did not have the capability to actually manufacture the quantity of hangers it exported to Eastern Trading in terms of machinery, personnel, and supply.
  • Over 80 percent of Eastern Trading’s imports of hangers can be linked to shipments from China through Thailand.
  • Information from the administrative record of the new shipper review under the AD order obtained from the Department of Commerce, in particular with regard to Everbright’s ownership, further supports a conclusion that Everbright was used to transship hangers from China.
  • During the period of investigation, Eastern Trading also received shipments of hangers directly from China marked with Everbright’s name.

Eastern Trading argued that it would be inequitable for CBP to assess antidumping duties and penalties on the company because it had no knowledge of the scheme and did not profit from it.  CBP dismissed Eastern Trading’s argument, noting that the statute’s definition of evasion only focuses on whether insufficient cash deposits or bonds were made, not the culpability of the parties.

In accordance with CBP’s final determination, CBP will continue to suspend liquidation for any entries on or after the date of initiation of this investigation, October 11, 2016.  Further, CBP will continue to extend the period for liquidation for all unliquidated entries that entered prior to that date.  CBP will continue to request that Eastern Trading post cash deposits on its entries and will require live entry for any future imports of covered merchandise, meaning Eastern Trading will be required to post cash deposits prior to release of the merchandise.  Lastly, Eastern Trading’s continuous bond will remain at the increased level and will be reviewed in accordance with CBP’s policies.  CBP noted that it will pursue any additional enforcement action under the EAPA as appropriate, such as penalty proceedings and referral to U.S. Immigration and Customs Enforcement for civil and/or criminal investigation.

CBP’s final determination is significant.  The critical relief provided to the domestic industry from unfairly traded imports pursuant to antidumping and countervailing duty orders may be limited if such orders are not effectively enforced.  CBP’s first affirmative final determination of evasion pursuant to the EAPA indicates that the EAPA will be an effective tool in ensuring that the requisite antidumping and countervailing duties are properly being paid on covered merchandise and domestic manufacturers and their workers are being provided the full extent of the relief they deserve.

BIS Publishes Rule Implementing 2016 Wassenaar Plenary Meeting Changes

Posted in Export Controls

On August 15, 2017, the Department of Commerce’s Bureau of Industry and Security (BIS) published a final rule amending the Export Administration Regulations (EAR) to implement changes agreed to by member states of the Wassenaar Arrangement in their December 2016 Plenary meeting. These changes are designed to prevent destabilizing arms trade, while also ensuring that U.S. companies are competing on a level playing field with their competitors in other Wassenaar countries.

The Wassenaar Arrangement on Export Controls for Conventional Arms and Dual-Use Goods and Technologies is a group of like-minded countries committed to promoting responsibility and ensuring effective export controls on strategic items to improve regional and international security and stability. BIS’s new rule implements changes from last year’s Plenary meeting by revising 50 Export Control Classification Number (ECCN) entries and expanding license exception eligibility for certain items. In many cases, the amendments are intended to recognize advances in technology, such as by raising the adjusted peak performance (APP) for digital computers controlled by ECCN 4A003 to track improvements in microprocessor technology (i.e., Moore’s Law).

Among other changes, BIS also revised its encryption controls again.  The agency formally removed “Note 4,” which excludes from U.S. encryption controls items with ancillary cryptography, such as a vending machine that sends encrypted communications to report that it has run out of soft drinks. Note 4 had been written in the negative, meaning that this exclusion from the encryption controls applied to items where the primary function was not information security, computing, communications, or networking.  In an effort to help clear up confusion among exporters, BIS replaced Note 4 with positive text in ECCN 5A002.a that specifies the items subject to control. From a practical standpoint, BIS indicated that the scope of control (and the formerly titled “Note 4” exclusion) remains the same, with one notable exception. In this connection, BIS added language to release from the encryption controls items where the encryption supports a non-primary function of the item (e.g., an automobile with a built-in mobile telephone), but the stand-alone encryption equipment (here, the mobile telephone) is not controlled by ECCN 5A002 (here, the phone is a mass market item controlled by ECCN 5A992.c).

Considering the scope of BIS’s changes and the large number of ECCNs impacted by such changes, exporters are encouraged to review the revisions that could impact their current product and technology classifications.

U.S. Trade Representative Initiates Investigation of Chinese IP Policies

Posted in Trade Negotiations, Trade Policy

On August 18, 2017, the United States Trade Representative (USTR) initiated an investigation under Section 302(b) of the Trade Act of 1974 regarding “China’s acts, policies, and practices related to technology transfer, intellectual property, and innovation.”  The investigation will determine whether these practices are actionable under Section 301 of that statute, which authorizes USTR to retaliate unilaterally against certain unreasonable or unjustifiable foreign trade practices.

USTR’s initiation notice sets forth four categories of policies that will be subject to the investigation, though information on other relevant practices will also be considered:

  • Any administrative approval processes, joint venture requirements, foreign equity limitation, procurements, or other mechanisms that require or pressure the transfer of technology or intellectual property from U.S. companies to Chinese companies;
  • Acts, policies, or practices that limit U.S. companies’ ability to set market-based terms in licensing or other technology-related negotiations with Chinese companies;
  • State-directed or -supported investments in U.S. companies for the purpose of acquiring technology or intellectual property and facilitating technology transfer in industries of strategic importance to the Chinese government; and
  • State-supported theft of technology, intellectual property, or other commercial information through hacking or other cyber-related means to provide a competitive advantage to Chinese companies.

Many will see an investigation into these issues as long overdue.  The Chinese government’s technology transfer policies and strategic treatment of intellectual property rights are perennial issues in U.S.-China trade relations, and World Trade Organization Rules do not provide a clear solution to the practices listed above.  A 2010 report published by the U.S. Chamber of Commerce, for example, described China’s “indigenous innovation” policies as “a blueprint for technology theft on a scale the world has never seen before.”  In response to President Trump’s August 14, 2017 memorandum calling for the investigation, the Chinese Ministry of Commerce issued a statement that “[a]ny U.S. trade protectionism move will surely damage bilateral ties and the interests of companies from both countries.”

The statute gives USTR 12 months to carry out its investigation.  USTR is soliciting written comments, to be submitted by September 28, 2017, and will hold a public hearing on October 10, 2017 at 9:30 AM.

President Calls For Inquiry Into China’s Technology Transfer Policy

Posted in Trade Negotiations, Trade Policy, World Trade Organization

On August 14, the President directed the U.S. Trade Representative (USTR) to study China’s policies of forcing U.S. companies to transfer technology and intellectual property to Chinese enterprises.  China uses a number of laws, policies, and practices that require U.S. companies to give up their technology as a prerequisite for either selling or investing in the Chinese market.  This affects a wide range of U.S. companies, from manufacturers to service providers to content creators.

USTR’s next step is to examine whether China should be investigated for unreasonable or discriminatory policies that may harm American intellectual property rights, innovation, or technical development.  If so, USTR would then be able to initiate an investigation of the issue under Section 301 of the Tariff Act of 1974.  An affirmative determination under Section 301 could result in USTR taking a number of actions from consulting with China regarding withdrawal of the harmful practices to imposing duties and other restrictions on Chinese goods and services.  Although the President’s memorandum to USTR focuses on technology transfer requirements, it is also worded broadly enough to cover other actions by China that harm U.S. innovation or technology, such as allowing intellectual property theft and restricting digital trade.

USTR will consult with other government agencies and advisory committees to determine what action, if any, is appropriate.  There may also be a formal hearing and comment process for companies and other stakeholders to provide their views.  Reports suggest that this process could take up to a year, while any subsequent Section 301 investigation would have to be completed within a year.

President Trump Signs Order on U.S. Manufacturing and National Security

Posted in Manufacturing, Trade Policy

As the Commerce Department prepares to issue its findings and recommendations in the ongoing Section 232 investigations into the national security implications of steel and aluminum imports, President Trump has signed a new Executive Order calling for a broader review of the state of the U.S. manufacturing and defense industrial base.  The Order, signed on July 21, 2017, links the condition of U.S. manufacturing directly to national security, saying that “{a} healthy manufacturing and defense industrial base and resilient supply chains are essential to the economic strength and national security of the United States.”  The Order calls on several U.S. government agencies, led by the Departments of Defense, Commerce, Labor, Energy, and Homeland Security, to conduct a 270-day assessment of the following five factors and to provide policy recommendations:

  • the military and civilian materiel, raw materials, and other goods that are essential to national security;
  • the manufacturing capabilities essential to producing such goods, including emerging capabilities;
  • the defense, intelligence, homeland, economic, natural, geopolitical, or other contingencies that may  disrupt, strain, compromise, or eliminate the supply chains of such goods;
  • the resiliency and capacity of the manufacturing and defense industrial base and supply chains of the United States to support national security needs upon the occurrence of those contingencies; and
  • the causes of any deficiencies in the defense industrial base or national-security-related supply chains.

The Order does not explicitly call for an assessment of the relationship between these factors and international trade.  According to Peter Navarro, Director of the White House Office of Trade and Manufacturing Policy, this assessment is independent of the ongoing Section 232 investigations.  The substance, however, appears to be closely related to the issues addressed under Section 232, which could foreshadow additional Section 232 investigations and responses covering vulnerabilities identified pursuant to the July 21 Order.

As noted previously on this blog, the relationship between the U.S. industrial base and U.S. national security has been a key element of Peter Navarro’s thinking on international trade issues.  The Trump Administration’s Trade Policy Agenda of March 2017 also included the objective of “{e}nsuring that United States trade policy contributes to the economic strength and manufacturing base necessary to maintain – and improve – our national security.”  As drafted, the July 21 Order does not provide procedures for public comment or participation.

Treasury Department Adds 16 Entities/Individuals to SDN List

Posted in Economic Sanctions

One day after President Trump reluctantly certified that Iran has been complying with the terms of the Joint Comprehensive Plan of Action relating to its nuclear program, the U.S. Treasury Department sanctioned 16 entities and individuals for supporting the Iranian military and Iran’s Islamic Revolutionary Guard Corps.  The designated entities are reported to have assisted in Iran’s development of unmanned aerial vehicles and military equipment, the production of fast attack boats, the procurement of electronic components in support of Iran’s military, and the theft of U.S. and western software programs.  At the same time, the U.S. State Department designated two Iranian entities involved in the country’s ballistic missile program.

As a result, these entities and individuals have been added to the Treasury Department’s list of Specially Designated Nationals and Blocked Persons (SDNs), and their property and interests in property are blocked.  U.S. persons are now generally prohibited from engaging in transactions with these (and any other) SDNs, and are also prohibited from engaging in transactions with entities 50 percent or more owned by such SDNs.

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