U.S. China Trade War
Facing the Perfect Storm
How The Import Alliance Can
Help Calm the Waters
August 7, 2014
View the Blog at www.uschinatradewar.com
Introductions
William Perry
Frank S. Hong
Partner – Seattle
Dorsey & Whitney LLP
(206) 903-8894
perry.william@dorsey.com
Partner – Shanghai
Dorsey & Whitney LLP
(86-21) 6135-6147
hong.frank@dorsey.com
Bill Perry is a Partner and International Trade
Lawyer in the Seattle office of Dorsey &
Whitney LLP and author of the blog,
www.uschinatradewar.com. 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.
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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.
U.S. and China Have a Trade War
• Cases are being filed in numerous legal areas:
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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
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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
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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.”
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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
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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
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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
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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
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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
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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)
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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
Banking
• Single Entity Doctrine:
– Go after damages from defaulting Chinese
companies by attacking Chinese banks
• Bank of China case
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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
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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
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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
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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
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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
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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
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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?
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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
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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
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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
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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
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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
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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.”
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For More Information…
Contact:
William Perry
Dorsey & Whitney LLP
(206) 903-8894
Perry.william@dorsey.com
Frank S. Hong
Dorsey & Whitney LLP
(86-21) 6135-6147
hong.frank@dorsey.com
Don Bonker
APCO Worldwide
202-718-1019
dbonker@apcoworldwide.com
IMPORT ALLIANCE
for AMERICA
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Ron Herman
Vice President and Treasurer of the Import Alliance
ronaldherman@salemsteel.com
Thanks for the great support
of COSCO.
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