American Trade & Manufacturing Blog

U.S. Trade Representative Notes China’s Lack of Progress on Overcapacity, State-Owned Enterprises

Posted in Trade Agreement Compliance, Trade Policy, World Trade Organization

In a new report on China’s compliance with its WTO obligations, the U.S. Trade Representative (USTR) highlights a number of shortcomings, including industrial overcapacity and the prominence of state-owned enterprises (SOEs).  The report emphasizes that “excess capacity in China . . . hurts U.S. industries and workers not only because of direct exports from China to the United States, but because lower global prices and a glut of supply make it difficult for even the most competitive producers to remain viable.”  The report highlights the Chinese government’s role in sustaining overcapacity in multiple industries, as well as its failure to address the problem despite commitments to do so:

  • “Chinese government actions and financial support in manufacturing industries like steel and aluminum have contributed to massive excess capacity in China, with the resulting overproduction distorting global markets and hurting U.S. producers and workers in both the United States and third-country markets such as Canada and Mexico . . . .”
  • “China has no comparative advantage with regard to the energy and raw material inputs that make up the majority of costs for steelmaking, yet China’s capacity has continued to grow and is estimated to have exceeded 1.16 billion metric tons in 2016 . . . .”
  • In the aluminum industry, “Large new facilities are being built with government support, including through energy subsidies, as China’s primary aluminum production accounted for 54 percent of global production from January through October 2016. As a consequence, China’s aluminum excess capacity is contributing to a severe decline in global aluminum prices, harming U.S. plants and workers.”

In another area of concern that is related to the overcapacity problem, USTR noted that a Chinese 2013 plan for SOE reform “has not yet led to significant reform of state-owned enterprises” and that “China has rebuffed U.S. requests” for “intensive dialogue with China on state-owned enterprise governance issues . . . .”

The complete 2016 Report on China’s WTO Compliance is available via USTR’s website, here.

Commerce Continues Important SIMA Program for Monitoring Steel Imports

Posted in Announcements, Compliance

On Thursday, the International Trade Administration of the Department of Commerce extended the Steel Import Monitoring and Analysis (SIMA) system, a significant steel import monitoring program, for an additional five years.  The program has now been in place for 12 years, since 2005, and provides timely and streamlined public access to steel import data.  As Commerce explains, this program “provides all interested stakeholders with a more informed understanding of changing market conditions in a transparent manner.”

Under the program, importers of steel products are required to obtain a license from Commerce prior to their completion of the necessary customs entry summary documentation.  The process to comply with this requirement is fast and automated, with Commerce estimating that it takes no longer than ten minutes to complete.  These licenses function as a valuable monitoring tool.  The SIMA program has been extended through March 21, 2022.

Webinar: Trade Policies in the Trump Administration: Part One

Posted in Uncategorized

President-elect Trump’s campaign focused heavily on international trade issues such as free trade agreements, import tariffs, and trade deficits. However, the campaign discourse may differ from the reality of the new Administration. Cut through the rhetoric and identify the challenges and opportunities presented by the Trump Administration. Join us for the first of our two-part webinar series to learn how new trade policies will affect domestic and foreign organizations.

What You Will Hear:

  • Trade remedies opportunities for U.S. manufacturers
  • The future of the WTO, dispute settlement, and trade agreements
  • Economic sanctions regimes: Iran, Cuba, and others
  • Potential uses of U.S. trade laws to aid U.S. manufacturing, exports, and infrastructure spending
  • Thinking outside the box – how to recalibrate corporate trade strategy to maximize results
  • Global barriers to competition – is this a new opportunity to address vexing problems and concerns?

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Last Weeks of the Year See a Flurry of FCPA Enforcement

Posted in Compliance, FCPA

The last two weeks of 2016 have seen a flurry of Foreign Corrupt Practices Act (FCPA) enforcement actions: a $519 million settlement against Israel’s Teva Pharmaceutical, an action in the billions against Brazilian construction conglomerate Odebrecht and its petrochemical unit, Braskem, and a $75 million settlement by Kentucky-based General Cable Corporation.

Teva’s December 22 settlement landed it in fourth place on the list of the ten biggest FCPA enforcement actions ever.  Teva, the world’s largest manufacturer of generic drugs, was accused of violating the FCPA by hiring a Ukrainian government official as a consultant and by bribing government doctors in Mexico.  The Teva managers responsible for overseeing compliance were allegedly “unable or unwilling” to enforce the company’s anti-corruption program.

On December 21, Odebrecht/Braskem was assessed a combined penalty worth an estimated $4.5 billion to resolve bribery charges with U.S., Brazilian and Swiss enforcement authorities.  The U.S. Department of Justice (DOJ) stated that Odebrecht “systematically paid hundreds of millions of dollars to corrupt government officials in countries on three continents.”  Odebrecht will pay ten percent of its final criminal fine to the United States, ten percent to Switzerland and ten percent to Brazil.  The U.S. portion of the fine should therefore be approximately $450 million, which would put Odebrecht/Braskem in at least fifth place on the list of the top ten FCPA penalties.  The exact final fine amount will be set during sentencing on April 17, 2017.

Finally, on December 29, General Cable entered into a $75.75 million settlement agreement with the DOJ and U.S. Securities and Exchange Commission to resolve FCPA violations in Angola, Bangladesh, China, Egypt, Indonesia and Thailand.  The company, a producer of copper, aluminum and fiber optic wires, is alleged to have paid $13 million from 2002 to 2013 to third-party agents and distributors. At least some of the money was then allegedly used to bribe government officials to obtain business.

With the two latest entrants to the top-ten list, four of the ten largest FCPA enforcement actions ever were concluded this year, making 2016 an extremely busy – and lucrative – year for FCPA enforcement.

Could Section 301 Return to Prominence?

Posted in Trade Agreement Compliance, Trade Negotiations, Trade Policy, Trade Remedies, World Trade Organization

Of the policy questions related to the incoming Trump Administration, one of the most compelling is whether the new President will revive Section 301 of the Trade Act of 1974 as a major component of U.S. trade policy.  Mr. Trump’s call to “direct all appropriate agencies to use every tool under American and international law . . . including the application of tariffs consistent with Section 201 and 301 of the Trade Act of 1974” suggests that he might.  But can the new Administration take unilateral action under Section 301 without violating U.S. law or U.S. commitments under the World Trade Organization (“WTO”) Agreements?

Section 301 was one of the key levers in U.S. trade policy before the creation of the WTO, particularly with respect to Japanese practices that U.S. companies and the U.S. government believed were anticompetitive and discriminatory.  It has remained largely dormant since then, except for the occasional petition resulting in a new WTO case.

Section 301 includes both mandatory and discretionary components.  Mandatory action requires violation of a trade agreement, but the discretionary component does not.  Rather, it allows the U.S. government to take action if a foreign government practice is unreasonable or discriminatory and burdens or restricts U.S. commerce.  Section 301, moreover, only requires resorting to dispute resolution under trade agreements if the issue is covered by a trade agreement.  A WTO panel has also explained that

The statutory language . . . gives the USTR the broad discretion we outlined above as regards the entire scope of U.S. trade relations, only a part of which comes within the orbit of WTO obligations.  Within the discretion allowed, the statutory language leaves it to the USTR to apply the provisions of the Trade Act which relate to the entire gamut of U.S. trade relations in a manner which is consistent with U.S. interests and obligations.

The answer, then, appears to be yes – the new Administration could bring back unilateral U.S. action under Section 301, without violating either U.S. law or WTO rules, but only for a limited subset of issues that are not covered by the WTO Agreements.  Reviving Section 301 would be controversial, but if a truly harmful trade policy cannot be addressed through dispute resolution, the use of Section 301 may actually result in freer trade and expanded opportunities for U.S. firms, and not the trade apocalypse that some foresee.

U.S. Customs and Border Protection Issues First Notices of Action Under the Enforce and Protect Act

Posted in Antidumping, Customs Law, Dumping and Subsidies, Trade Remedies

Last week, U.S. Customs and Border Protection (CBP) posted two Notices of Action (NOAs) regarding allegations submitted pursuant to the Enforce and Protect Act (EAPA).  The NOAs—one to initiate an allegation and one notice of non-initiation—are the first that have been posted since CBP established its interim rules for EAPA allegations in August 2016. These new notices provide initial insight into the criteria governing CBP’s initiation determinations.

Passed as part of the Trade Facilitation and Trade Enforcement Act of 2015, the EAPA established a formal process for CBP to investigate allegations of the evasion of antidumping and countervailing duty orders.  Under the EAPA, CBP will initiate an investigation if provided with information that “reasonably suggests” that merchandise subject to an antidumping and/or countervailing duty order has entered the United States through evasion. However, the statute does not define “reasonably suggests,” and there has been considerable speculation in the trade community regarding the type of information that CBP will deem sufficient to initiate an investigation.

The first of the two new NOAs concerns an allegation regarding imports of merchandise covered by the antidumping and countervailing duty orders on circular welded carbon quality steel pipe from China.  The alleging party, Wheatland Tube Company, claimed that a company called NEXTracker had been importing circular welded carbon quality steel pipe from China “at prices well below those necessary to reflect the applicable cash deposit rates and eventual duty assessment.”  In support of its allegation, Wheatland submitted data regarding the quantity of imports entered by NEXTracker, as well as general import data for the merchandise at issue.  Relying on the average unit value of all circular welded carbon quality steel pipe imported into the United States from China, Wheatland estimated that NEXTracker would have owed $81.5 million in duties on its imports and asserted that it “defies credulity and commercial reality to accept that NEXTracker” paid this amount.  Thus, Wheatland alleged, the only “plausible explanation” was that NEXTracker entered merchandise without paying the required cash deposits.

CBP found that this allegation did not reasonably suggest that merchandise had entered the United States through evasion.  CBP noted that the allegation was premised on Wheatland’s estimate of what NEXTracker’s duties would have been based on data that were not specific to NEXTracker and “provided no evidence, beyond mere supposition, to reasonably suggest that NEXTracker’s entries were made by material false statements or act, or material omission, that resulted in the reduction or avoidance of applicable” antidumping and countervailing duty cash deposits.  Therefore, CBP did not initiate an investigation based on this allegation.

The second NOA indicates that CBP has initiated an investigation into Eastern Trading NY Inc.’s imports of steel wire garment hangers from China, and has imposed interim measures to halt purported evasion.  The alleger, M&B Metal Products Company, Inc., asserted that Eastern Trading’s steel wire garment hangers were being transshipped though Thailand by Everbright Clothes Hanger (Thailand) Co., Ltd. to avoid payment of antidumping duties.  In support of this allegation, M&B submitted information—including pictures of Everbright’s facility, information from a researcher who had visited and spoken with people involved with the facility, and Everbright’s financial statement—indicating that Everbright was not capable of manufacturing the quantity of steel wire garment hangers that were being imported by Eastern Trading.  M&B also provided information on the ties between Eastern Trading, Everbright, and companies in China, as well as the timing of Everbright’s establishment.  CBP determined that this information reasonably suggested that there was no (or insufficient) manufacturing in Thailand to support Eastern Trading’s imports and, consequently, that merchandise subject to an antidumping order was entering the United States through evasion.  Therefore, CBP initiated an investigation.

In addition, the NOA outlined interim measures CBP was taking as a result of its investigation.  Specifically, subsequent to its decision to initiate an investigation, CBP requested additional information from Eastern Trading regarding the merchandise at issue, such as production records and information on Everbright’s manufacturing and export activities.  CBP also visited Everbright’s facility in Thailand.  CBP found not only that there were significant discrepancies between the information submitted by Eastern Trading and that collected during its on-site visit, but also that Everbright was unable to produce the quantities imported by Eastern Trading.  Accordingly, as interim measures, cash deposits under the antidumping order were required on all entries of merchandise covered by the investigation, all entry documents and duties are required before any future imports for Eastern Trading may be released into commerce, and liquidation has been suspended for entries that entered after the date of initiation of the investigation.  CBP’s final determination in this investigation is due August 7, 2017, but can be extended until October 6, 2017.

Antidumping and countervailing duty orders provide important and much needed relief to domestic manufacturers and their workers from unfairly traded imports.  However, this relief can be muted if orders are not effectively enforced.  The EAPA serves as another tool in the trade remedies arsenal that domestic manufacturers, unions, and trade associations can utilize to help promote enforcement of antidumping and countervailing duty orders.  CBP’s NOAs provide important information for parties that believe antidumping and countervailing duty orders are being evaded and/or may be considering submitting an allegation on how CBP will approach the EAPA process.  More information on the EAPA and CBP’s procedures, as well as the NOAs, is available at https://www.cbp.gov/trade/trade-enforcement/tftea/enforce-and-protect-act-eapa.

China’s Request for Market Economy Status

Posted in Antidumping, World Trade Organization

As anticipated, the Chinese government today requested consultations with the United States at the World Trade Organization (WTO) regarding the use of the “non-market economy” (NME) methodology in antidumping investigations. Wiley Rein represents numerous U.S. industries that oppose China’s request for market economy status.

China bases its request on the December 11, 2016, expiration of Paragraph 15(a)(ii) of its Protocol of Accession. China claims that this provision was the sole legal basis for the application of the NME methodology, and that its expiration means WTO Members may no longer use the methodology to determine dumping margins. Opponents of China’s arguments—including the U.S. government—argue that language remaining in the Protocol after the expiration of Paragraph 15(a)(ii) continues to provide clear legal authority for WTO Members to apply the NME methodology in accordance with domestic law.

China’s claim is misplaced. Despite the fact that provision (a)(ii) expired yesterday, the remainder of Section 15 remains in full force and effect and continues to provide sufficient authority to treat China as a non-market economy. Treating China as a market economy would be an unwarranted step with significant negative ramifications. In September 2015, we published a report, “The Treatment of China as a Non-Market Economy Country After 2016,” which concluded that China is not a market economy. A full copy of the report can be read here.

U.S. law provides six factors to determine whether, as a substantive matter, a country qualifies as a market economy for the purpose of U.S. antidumping investigations. If an analysis of those factors demonstrates that prices and costs in the country are not set by market forces, the U.S. Department of Commerce will use “surrogate values,” or prices and costs in a third country at a similar level of economic development, to calculate dumping margins. As a substantive matter, the Chinese government continues to intervene extensively in its domestic economy to support domestic firms in international competition. Because economic outcomes are not determined by market forces, standard antidumping methodologies do not reflect true margins of dumping and result in incomplete relief for U.S. industries against dumped Chinese imports.

In February 2016, I testified before the U.S.-China Economic and Security Review Commission (USCESRC) on this topic, concluding that whether you look at criteria in United States, European Union, or Canadian law—and each government’s approach to China as a major trading partner—China is not a market economy.

New ITAR and EAR Rules on Fire Control, Laser, Imaging, and Guidance Equipment Go Into Effect at the End of the Year

Posted in Export Controls

Get ready.  On December 31, the Department of State, Directorate of Defense Trade Controls’ (DDTC) and the Department of Commerce, Bureau of Industry and Security’s (BIS) final rules revising the export controls on fire control, laser, imaging, and guidance equipment are set to go into effect.  These rules are part of the Administration’s Export Control Reform (ECR) Initiative but are not subject to the typical six-month transition period, as the Administration tries to push through as many final ECR rules as possible before the end of President Obama’s term.

Category XII of the International Traffic in Arms Regulations’ (ITAR) U.S. Munitions List currently controls a broad basket category of fire control, range finder, optical, and guidance and control equipment.  Although DDTC’s new final rule creates a more positive list of controlled items, it retains the Category XII controls on certain items, such as light detection and ranging (LIDAR), laser detection and ranging (LADAR), and range-gated systems; and binoculars, bioculars, monoculars, goggles, and head or helmet-mounted imaging systems (including video-based articles having a separate near-to-eye display) with an infrared focal plane array or infrared imaging camera, based solely on design intent, just as DDTC’s February proposed rule did.  Indeed, seemingly contradicting a primary goal of the ECR effort, these Category XII items are controlled simply when they are originally developed for use by a military end-user (e.g., national armed services, national guard, national police, government intelligence or reconnaissance organization, or any person/entity whose actions or functions are intended to support military end-uses).  Items developed for both military and commercial users or created with no specific end-user in mind will fall outside of the scope of this control, but companies will need contemporaneous documents to support the dual-use or non-military nature of their development efforts.

BIS’s companion rule makes several changes to the Export Administration Regulations (EAR) to add controls on the items that will shift from ITAR control. Export Control Classification Number (ECCN) 7×611 will now cover specified non-ITAR-controlled fire control, laser, imaging, and guidance equipment.  Consistent with its February proposed rule, BIS is removing the special controls in the EAR on certain QRS-11 sensors to ease burdens on U.S. exporters, including the prior prohibition on use of the EAR’s de minimis rule for such sensors.  At the same time, however, BIS has expanded controls on certain non-600 series cameras, systems, and related components that are intended to be used by a military end-user or to be incorporated into a foreign-made military commodity.

Overall, the final ECR rules on fire control, laser, imaging, and guidance equipment are a bit of a mixed bag and are not as expansive as the Administration’s reforms for many other types of products.  Nonetheless, the effective date for the final rules is fast approaching, and impacted industries should gear up to incorporate and address these changes in their compliance programs.

The Trump Administration and Sanctions

Posted in Economic Sanctions

During his presidential campaign, President-Elect Donald Trump made few concrete statements regarding sanctions policies. However, it is possible to identify some areas where things might change significantly.

Iran: President-Elect Trump has said that he would immediately scrap the Joint Comprehensive Plan of Action (JCPOA) with Iran. The JCPOA has been described as a political commitment rather than a legal agreement. Under U.S. law, the President could accordingly modify the commitments of the United States, or even withdraw the United States from the Agreement completely, by his own action. Among other measures, the United States could re-impose a range of secondary sanctions against Iran, including those applying to financial and banking transactions; transactions involving the energy, shipping and shipbuilding, and other sectors; and trade in certain materials like steel. From the perspective of U.S. companies, the most likely and far-reaching change would be the revocation of General License H, which allows the foreign subsidiaries of American companies to do some types of business with Iran. The re-application of secondary sanctions could have a major effect on U.S. relations with major trading partners, especially the European Union, which has dismantled most of its sanctions against Iran. It is likely that the EU in particular would argue strongly against any proposed re-expansion of U.S. sanctions against Iran. Warnings from the U.S. intelligence community that terminating the JCPOA would have adverse security consequences may also affect decisions regarding the JCPOA.

Russia: President-Elect Trump has emphasized that he wants to establish better relations with Russia. This could potentially lead to a loosening or even dismantling of U.S. sanctions against Russia. That said, the United States has worked closely with the EU to coordinate policy regarding Russia, which could act as a brake on changes.

Cuba: Following the death of Fidel Castro, President-Elect Trump threatened to reverse liberalization of U.S. sanctions against Cuba unless there was a “better deal for the Cuban people.” While the liberalization of U.S. sanctions against Cuba has been unpopular with some segments of the Republican Party, American businesses have already begun to take advantage of relaxed sanctions, and would probably oppose any renewed restrictions. The most likely outcome is the maintenance of the status quo, but little if any additional action regarding Cuba.

General U.S. Policy: One of the pillars of the Trump campaign was a desire for a less-interventionist U.S. foreign policy. Taken at face value, this would indicate that, under President Trump, the United States might be more reluctant to impose sanctions as a tool of foreign policy. This is especially true with respect to human rights issues. As always with a new administration, though, mostly we will have to wait and see, first who is appointed to key positions such as Secretary of State, and second, what the new Trump Administration actually does.

The Outlook For Sanctions and Export Controls in the Next Administration

Posted in Economic Sanctions, Export Controls

With the presidential election fast approaching, businesses may be wondering what the next administration is likely to do with respect to sanctions and export controls. If Secretary Clinton is elected, the most likely path is a continuation in general of the current policies. If Donald Trump is elected, the prospects are much less clear. And in any event, much depends upon international developments which, as we saw in connection with Ukraine, can change the international sanctions situation quite quickly.

In the event of a Democratic victory in the elections, Secretary Clinton has been relatively candid regarding her position on various countries laboring under sanctions regimes:

  • Iran: Secretary Clinton was a member of the Obama Administration, and was involved in negotiations with Iran over the Joint Plan of Action (JPOA). She has evinced suspicion of the Iranian government, going so far as to identify Iran as one of her “enemies,” but is likely to observe the terms of the JPOA, but to interpret the agreement narrowly.
  • Russia: Secretary Clinton’s distaste for President Putin and the Russian government is well-publicized. However, the United States has made great efforts to align its sanctions policies towards Russia with those of the European Union. Given current opposition within the EU to any expansion of sanctions against Russia, this may limit any expansion of U.S. sanctions against Russia.
  • Syria: Secretary Clinton has made clear her belief that President Assad must leave power in Syria, but U.S. sanctions against Syria are already quite comprehensive, and it is unclear how they could be expanded significantly.
  • Cuba: While there is no indication that Secretary Clinton shares President Obama’s commitment to liberalization of relations with Cuba, there is no reason to believe that she would reverse any of the recent measures, although the rate of softening could certainly slow. Significantly, a major portion of U.S. sanctions against Cuba are statutorily imposed, so that U.S. sanctions policy regarding Cuba will depend in large part upon developments in Congress.

Overall, Secretary Clinton is associated with proponents of a “more assertive” U.S. foreign policy. Increased use of sanctions as an instrument of U.S. foreign policy is likely, but it is premature to identify any specific examples. Similarly, it is likely that the current ongoing efforts to reform and rationalize U.S. export control laws will continue, but no appreciable liberalization is likely.

It is much more difficult to anticipate what President Trump would do with respect to sanctions and export controls. He has no record to review, and has made few if any statements regarding the subject. Mr. Trump has stated that he favors a less-interventionist foreign policy overall, and has called for better relations with Russia in particular. Whether this would translate into any liberalization of U.S. sanctions and export control policy, however, is unclear.

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