China-U.S. Trade Law

Lessons For China From Canada

Dr. Elliot J. Feldman — Sun, 08 Apr 2012 12:53:06 -0600

The final part of “Nothing Unites The United States Congress Like China (And Not In A Good Way): Treating China Like Canada (Maybe Even Worse),” we present this week. It is called, “Lessons From Canada.” Part One, entitled “Rewriting Subsidies Law To Fit Chinese Facts,” was posted two weeks ago; Part Two, “The Broken Promise To China,” was posted last week.

China is not the first trade partner of the United States to experience losing by winning, going through the process by the rules only to have Congress change them. Perhaps there is something in the American culture that accepts Lucy enticing Charlie Brown and then snatching the football from him. We cautioned, in an article posted August 2, 2009, about “How The U.S. Treats Its Friends In Trade Disputes.” We did not elaborate there on changing the law, but Canada has experienced exactly what has now happened to China, and it has left a lasting impression on Canadians.

To overcome what it interpreted as an intractable bias against foreign countries and entities in U.S. courts, Canada successfully negotiated an alternative dispute resolution system for trade cases, Chapter 19 of the Canada-U.S. Free Trade Agreement, that became Chapter 19 of the North American Free Trade Agreement (“NAFTA”). Chapter 19 creates binational panels of trade experts from both Canada and the United States to replace the U.S. Court of International Trade for appeals of administrative determinations on countervailing duty and antidumping investigations at the Department of Commerce and the U.S. International Trade Commission. The binational panel decisions cannot be appealed except for limited “extraordinary challenges” brought by the governments for gross panelist misconduct or ultra vires panel actions that threaten the review process, so the panels replace the Court of Appeals for the Federal Circuit as well as the Court of International Trade.

Chapter 19 came into effect in 1989 and Canada won some of its first appeals to binational panels within the year. The United States promptly began to curtail the authority of Chapter 19 panel decisions. The Department of Commerce refused to recognize panel decisions from one administrative review to another, forcing Canadian entities to appeal every year determinations finding certain programs to be countervailable subsidies after binational panels had found, in the previous year, that they were not. This practice did not deviate radically from the Department of Commerce’s tendency to ignore CIT decisions as well, but Canada had thought that the Free Trade Agreement would mean greater comity.

Canada found the United States continuously ignoring binational panel decisions. When binational panels decided that the United States Customs Service had no legal authority to collect more than $1 billion in duty deposits, the United States refused to return the money to Canadians as the law seemed to require. The United States used the money as leverage to force Canada into a settlement of a case that Canada had won.

Most egregious, perhaps, and most consistent with China’s experience now, Congress used the occasion of implementing trade liberalization – the Uruguay Round Agreements Act of 1994 – to enhance protectionism, explicitly changing trade rules in the law to reverse adverse judicial decisions in the ongoing feud with Canada over softwood lumber. A section of the trade law, 19 U.S.C. § 1677(A)(5A)(D)(iii), was scripted by U.S. petitioners expressly to overcome decisions favoring Canada in trade remedy judicial appeals.

During the last war over softwood lumber, the United States forced Canada into extraordinary challenges under NAFTA and into U.S. courts to enforce NAFTA and WTO decisions. The United States turned its defeats at the WTO into opportunities to rehabilitate rejected agency determinations. Matters were prolonged for years while Customs collected deposits on duties that would never be owed. The United States accumulated $5.5 billion while bleeding out the cash flow of Canadian companies.

Canadians became completely discouraged. No matter how many times they won legal decisions, the United States kept collecting and holding onto their money. The dispute dragged on for five years. All the while, Canadians remembered well how the United States was willing and able to change the laws when Canadians had enjoyed legal victories, or to interpret laws in novel and doubtful ways.

Nor was the experience with the Uruguay Round implementation entirely new. The Department of Commerce, invoking Section 304 of the trade law, had imposed “interim measures” against Canadian softwood lumber in October 1991, collecting duty deposits, without a petition, self-initiation, nor a preliminary determination. It took two years for an international panel of the General Agreement on Tariffs and Trade (“GATT”) to find this action “inconsistent with Article 5:1 [of the GATT]. The United States then did nothing to comply with the GATT decision. This experience, too, Canadians remembered many years later.

Eventually, Canadians gave up, entering an agreement in which they handed over $1 billion to the United States, half of which was given to the U.S. industry that had lost the legal battles. It was not the first such cash payment to settle a trade dispute (Mexican cement companies paid $150 million), but it was the first not to result in free trade. The Canadians accepted managed trade at higher duty rates than prevailing at the time of the settlement when the legal process had promised free trade. The United States persuaded Canadians that, in the end, they could not win, no matter how much the law supported them. International rulings could not be enforced, and the domestic law could always be changed.

The United States deployed a powerful combination of actions against Canada, defying adverse legal decisions, collecting and withholding money illegally, changing the law. In the end, the United States got its way, not by celebrating the rule of law, but by bending the law to its will. Nothing impressed Canadians more negatively than completing a cycle of the judicial process only to have the law changed.

China Is Not Canada
In addition to the common lessons for China and Canada from different cases – that participation in the judicial process is no guarantee of a fair outcome – there are lessons, too, from the same cases. To pursue subsidies allegations against a non-market economy, the Department of Commerce adopted a methodology in parallel to its antidumping methodology for NMEs. Eschewing values in an economy with no market, the Department has looked to values in other countries. These surrogate values are meant to substitute for values in China that cannot be relied upon absent market forces.

The caprice in selecting surrogate values is perhaps inescapable, but the Department of Commerce has been aggressive in abusing the virtually unlimited discretion it enjoys with a silent statute. The NME methodology for antidumping has statutory rules concerning the selection of surrogate values. Because no statute ever authorized countervailing duty investigations in NME countries, there are no rules. H.R. 4015’s pithy two pages introduce none.

In the countervailing duty investigation of Laminated Woven Sacks, the Department used land values in Bangkok as surrogates for rural Shandong Province. The Department did not even acknowledge in its final determination the testimony of a land use expert that such comparisons of land values across countries and between urban and rural areas are nonsensical.

The Department of Commerce justified its use of out-of-country benchmarks to evaluate subsidy allegations against products from China by citing its final determination in Softwood Lumber from Canada, the very trade dispute in which the United States kept changing the rules. There, the Department had reasoned that provincial government ownership of Canadian forests meant excessive government control of the market and prices, preventing the Department from measuring alleged subsidies. The Department therefore selected prices from the United States, “cross-border benchmarks,” effectively treating Canada as a non-market economy.

A Canada-U.S. Free Trade Agreement binational panel had struck down the cross-border benchmarks in a previous iteration of the dispute over softwood lumber, and a NAFTA panel, more than a decade later, rejected them again. The WTO Appellate Body ruled that out-of-country benchmarks might be justified in some cases, but not in this one. Claiming the WTO rejection of the cross-border benchmarks in this case to be an approval of cross-border benchmarks in principle, the Department of Commerce persisted in using them until Canada capitulated more generally for a settlement.

The Softwood Lumber final determination – repudiated by a binational panel and hardly endorsed by the WTO – has been the legal basis for the Department of Commerce’s methodology in applying surrogate values to China in the subsidies cases that the U.S. Congress has now blessed. The legislation never addressed this issue at all, and China has failed to challenge judicially this fundamental infirmity in the legal process. The Chinese countervailing duty cases are, therefore, the direct progeny of the U.S. treatment of Canada, its best friend and leading trade partner.

Although China is experiencing what Canada has experienced, China is not Canada. Four decades have passed since Canada underwent a drastic reappraisal of its relations with the United States and decided it had to diversify, only to conclude in a Royal Commission Report thirteen years later that Canada would always be dependent on the United States and needed to secure access to the American market. The free trade agreements were supposed to provide that security, but once binational panels began ruling in favor of Canada, the United States hastened to change, in fact and in legal interpretation, the terms to which it had agreed.

The United States has always taken Canada for granted. Canada has not always had to accept that relationship, but it has almost always elected to do so.

The United States cannot now, and never will be able, to take China for granted the way it does Canada. China will not bend so easily to the American will. During the last decade it has been chic in Canada to talk about a foreign policy that “punches above its weight,” highlighting the contradiction between Canada’s prosperity and international influence, on the one hand, and its very small population, on the other. China, by contrast, is thought not to punch its weight at all, still presenting itself partially as a developing country not ready for a full international role. Yet, the Chinese economy already surpasses Canada’s in size and is second only to Canada’s in two-way trade with the United States. Canada will never be a regional power in a region with the United States; China is already a regional power and is growing more powerful.

The United States cannot reasonably expect China to accept the kind of international trade treatment it has gotten Canada to accept. China will have no less a memory of what has happened, and may have no less bitterness that, having played by the rules and participated in the process, China had to face the United States simply changing the rules. But unlike Canada, China will not accept merely what the United States will permit it to have.

The Dangers Of What Has Been Done
Notwithstanding the celebration of bipartisanship and the suggestion of national unity against China in legislating H.R. 4015, the United States has embarked on a perilous course. Following the way it has treated Canada, the United States risks a trade war and endless antagonism with China. It risks, too, the whole international trading system now defined by the WTO, which the United States carefully has built over the last sixty-five years.

It is hazardous to exaggerate U.S. dependence on China as the leading creditor and emerging export market for the United States. China, on many dimensions including trade, is dependent on the United States. Nor should one romanticize the role China plays in the international marketplace. China’s economy is largely controlled from the center and the government does try to pick winners and losers. Notwithstanding protest and denial from China’s Minister of Commerce, there are instances when the appropriate question is not whether the state subsidizes, but whether those subsidies are actionable under U.S. and WTO laws and obligations.

The United States will remain for many years to come a greater power than China in virtually every respect. But unlike Canada, whose ambitions have been contained in a desire to be a faithful and trusted friend and ally, China’s ambitions are to be America’s equal. Probably nothing more; certainly nothing less.

China could interpret this most recent experience as a reason to give up on the rules, to bow out of the judicial processes. To a startling degree, that is what has happened with Canada.

China could devise ways to retaliate or, perhaps worse, imitate American conduct. China will not be inclined from the overheated rhetoric in the United States to conciliate, and it surely will not, like Canada, capitulate. The United States does not need a hostile or antagonistic China, and China will not benefit from a trade war with the United States. This latest episode, however, could be a turning point, as it was for Canadians who harbor an eternal resentment about the American willingness to change the rules when the United States does not like an outcome. Crowing about changing the rules after losing a legal proceeding is no way for the United States to avoid alienating the Chinese the way it has alienated many Canadians. To most Americans, it may not matter how Canadians feel. They still bend. But this time, with China, the United States is dealing with a much less forgiving and compliant friend.

从加拿大汲取经验

中国并不是唯一面临这种虽赢犹输、依法行事却被国会改变一切的国家。早在2009年8月2日的文章中我们就提醒中国《美国在纠纷中如何对待贸易伙伴》。加拿大的经历和中国经历如出一辙，令加拿大人永远不能忘怀。

加拿大认为美国法庭歧视国外政府及企业，因此和美国谈判后签署了另一争端解决体系——《美加自由贸易协定》第十九章。根据第十九章，两国选派贸易专家建立多个双边仲裁委员会以取代美国国际贸易法庭重新审阅美国商务部和国际贸易委员会的反补贴、反倾销调查结果。只有两国政府可以向根据《美加自由贸易协定》建立的特别委员会提出重新审理上诉双边仲裁委员会裁决的申请，且只有当委员的不当举动或是仲裁委员会的行动阻碍进程时才可上诉。如此，这两个级别的委员会取代美国联邦上诉庭及美国国际贸易法庭进程。

《美加自由贸易协定》第十九章于1989年生效，同年加拿大赢得第一批案件的胜利。美国立即开始削弱第十九章委员会裁决的法律效力。美国商务部在一年一度的行政复审中拒绝承认委员会裁决，迫使加拿大每年上诉反补贴裁定。这并未改变美国商务部对国际贸易法庭裁决置之不理的恶习，但这打破了此前加拿大认为《美加自由贸易协定》更具效力的错觉。

此后，加拿大发现美国持之以恒地忽视双边仲裁委员会的裁决。例如，双边仲裁委员会裁定美国海关收缴10亿美金关税定金的行为没有法律依据，但是美国拒绝依法将这笔巨款退还加拿大。相反，美国利用这笔巨款作为谈判筹码，迫使加拿大参与谈判已经获胜的案件并达成和解。

与中国的经历极其相似，美国国会利用开放贸易的时机——1994年《乌拉圭协定法案》增强贸易保护主义，修改贸易法以改变不利于美国软木行业的司法裁定。19 U.S.C. § 1677(A)(5A)(D)(iii)即为美方杰作，针对加拿大取得的一系列司法上诉胜利，他们推动制定了这一新章节。

在上一轮软木大战中，美国迫使加拿大运用《美加自由贸易协定》特殊上诉机构和美国法庭以敦促美国实施美加自由贸易协定和世贸组织裁定。美国虽然在世贸组织挫败，但却迟迟不执行世贸组织裁定。加拿大企业一边滴血，一边眼睁睁地看着美国海关不断收缴关税定金。这几十亿美金永远也不可能返还加拿大。

毫无疑问，加拿大深感挫败。无论加拿大取得多少法律胜利，美国总是能设法收缴并保留税金。这一纠纷持续了五年，这五年里美国修改法律以挫败加拿大的法律胜利让加拿大记忆深刻。

美国实施乌拉圭回合谈判的表现也不再让加拿大惊讶。美国商务部于1991年10月在没有接到调查申请书、未自发展开调查、未发布初裁结果的情形下向加拿大软木采取“暂时措施”，征收关税定金。世贸组织前身——关贸总协定历时两年才裁定这一举措不符合关贸协定第5:1条。但是美国并未采取任何行动实施这一裁定。时隔多年，加拿大仍记忆犹新。

最终加拿大不得不放弃，与美国签订协定并将10亿美金拱手让给美国，其中二分之一被败诉的美国企业获得。此前墨西哥在水泥案中也付出价值1.5亿的赔偿金，但在自由贸易时代这还是第一次。虽然司法裁定支持自由贸易，但加拿大仍被迫签署限制贸易、高税率的软木贸易协定。美国成功说服加拿大，无论法律如何支持加拿大，国际裁定无法在美国落实，而美国法律总可被修改。

总而言之，美国运用了一系列武器对付加拿大：重新解释不利裁决、非法扣留税金、修改法律。最终美国并非通过依法行事、而是通过扭曲法律实现自己的目标。这只给加拿大留下负面印象。

中国不是加拿大

中加两国可从这些案件中汲取一共同教训—— 参与司法程序并不保证公平结果，此外还有更多经验教训值得中国参考。美国商务部对非市场经济国家展开反补贴、反倾销调查时使用了特殊计算方法，即使用第三国价格作为参考价格。美国商务部认为中国没有市场，因此中国的价格不具参考价值，必须用第三国价格取代。

任意选择第三国价格无法避免，但是美国商务部竭尽全力充分利用这一调查方法令人发指。美国法律对反倾销调查中选择第三国价格有详尽规定。但是因为美国法律并未授权对非市场经济国家展开反补贴调查，因此并未就此制定法规。薄薄两页的H.R. 4105也并未触及这一重要问题。

在复合编织袋反补贴调查中，美国商务部使用曼谷的土地价格作为山东农村土地价格的参考价格。土地专家作证指出，这种跨越国界、城市价格取代农村价格的做法极不合理，但是美国商务部在发布终裁结果时甚至未提及这一证词。

美国商务部引述加拿大软木终裁结果这一案例法为自己使用第三国价格指标衡量补贴辩解，而这一案件正是美国不断修改法律维护自身利益的最好例证。在软木案中，美国商务部认为加拿大省政府拥有森林资源，这意味着政府过分控制市场和价格，美商务部无法估量补贴指控。因此美国商务部选择美国价格，即“第三国价格指标”，视加拿大为非市场经济体。

美加自由贸易协定双边仲裁委员会在仲裁软木案时裁定，使用第三国价格指标违法；十多年后，另一仲裁委员会再次否定这一计算方法。世贸组织上诉机构则裁定，在某些案件中使用第三国价格指标合法，但在软木案件中不合法。美国商务部却声称世贸组织的裁定表明世贸组织原则上支持使用第三国价格指标，美国商务部一直使用这一调查计算方法直至美加两国签署协议和解这一贸易纠纷。　

这一被美加自由贸易协定双边仲裁委员会以及世贸组织否定的终裁结果却成为美国商务部计算向中国产品征收反补贴税税率的法律依据，更不可思议地得到美国国会支持。最近通过的法案没有触及这一重要法律问题，中国在司法诉讼中也并未挑战这一原则性错误。因此，中国成为美国错误对待加拿大的受害者。　

虽然中国重蹈加拿大覆辙，但中国不是加拿大。四十多年前加拿大评估美加关系，总结认为应当使双边贸易更加多元化。十三年后，加拿大却总结得出加拿大将永远依赖美国市场，因此必须确保美国市场对加拿大产品开放。《美加自由贸易协定》理应为加拿大提供保障，但是当看到双边仲裁委员会的裁决有利于加拿大时，美国立即修改法律并重新诠释它的法律承诺。

美国一直视加拿大的态度为理所当然。虽然加拿大可以改变这一惯例，但是加拿大总是选择避免采取这一行动。

美国现在无法像对待加拿大那样任意摆布中国，将来更不可能。中国不会轻易屈服于美国压力。过去十年，加拿大流行一说法“轻量级选手的重量级出击”，即加拿大的富裕及国际影响与其有限人口形成鲜明对比。与此相反，中国却有所保留、并未使出全力，以尚不能承担国际领袖职责的发展中国家出现。但是中国的经济实力已经远远超出加拿大，中美双边贸易量仅次于美加双边贸易。加拿大永远不能和美国并肩成为区域领袖，但是中国已经是强大、且茁壮成长的区域领袖。　

理智的美国不会期待中国接受加拿大已经接受的贸易待遇。中国参与世界贸易体系、遵循贸易规则，但它可能将长久品位苦涩。

The Broken Promise To China

Dr. Elliot J. Feldman — Thu, 29 Mar 2012 16:46:36 -0600

中文请点击这里

This week we present Part Two of “Nothing Unites The United States Congress Like China (And Not In A Good Way): Treating China Like Canada (Maybe Even Worse).” It is entitled, “The Broken Promise To China.” Part One, entitled “Rewriting Subsidies Law To Fit Chinese Facts,” was posted last week.

The Broken Promise To China

Entry into the WTO a decade ago has paid off handsomely for China, enabling its trade to flourish and accelerate its economic growth and development. However, a critical element of China’s accession was acceptance of the rule of law. China was required to accept the arbitral procedures and consequences of WTO membership, but reciprocally was promised the benefits of those procedures. Not long after its accession, the United States and other countries brought cases against China. China quickly joined other countries challenging American safeguards against steel, and soon thereafter began to bring cases against the United States and other countries on its own.

Nothing could be more satisfying to proponents of the international rule of law than to persuade a country operating outside that framework for more than a half-century to change its ways and enlist in the procedures of the international community. China was quick, in the first cases brought against it, to accede. Instead of availing itself of the full and often protracted means of delaying undesirable outcomes, China promptly settled cases, acknowledging with little dispute when the complaints against it seemed justified.

It took longer for China to appreciate that generosity with the rules typically is not reciprocated in the WTO, least of all by the United States. The United States normally resists claims against it through every procedural device and interpretation possible. Perhaps the most celebrated example is the antidumping technique of “zeroing,” which the United States lost before the Appellate Body of the WTO in 2004, yet has found ways to continue the practice, in one form or another and despite more than a dozen WTO cases brought against it, since it first lost before a WTO panel a decade ago. The United States has insisted that it plays by the rules and that China does not. To the extent that China has been playing by the same rules as the United States since its accession to the WTO, it has played by the same rules differently and generally not as characterized by the United States.

The WTO is not the only forum in which China had to be persuaded to participate as a price and privilege of conducting its affairs according to the rule of law. Until November 2006, trade remedy cases against China in the United States did not technically or formally involve the Chinese Government because they were always and only antidumping cases. Antidumping allegations revolve around setting prices, which as a matter of the antidumping law is done by companies, not governments. Once the U.S. Department of Commerce began accepting countervailing duty petitions, however, the Chinese Government could not remain on the sidelines. The allegations necessarily involved government activities and programs, and even were it not to avail itself of legal rights, the Government of the People’s Republic of China would have to answer questionnaires and be involved in the investigations.

China was far more reluctant to avail itself of the judicial institutions and procedures of the United States than it had been of the WTO. For all foreign governments there is a hesitation to be a party in U.S. courts and submit sovereignty to the judgments and authority of U.S. judges. For six years, the Government of China has avoided initiating legal procedures in trade matters in U.S. courts, but with caution and reluctance it has begun to participate, conspicuously as an interested party in the GPX case.

Lawyers representing the Chinese Government in countervailing duty cases have urged the Government to participate in the domestic judicial process of the United States. The WTO is slow and its remedies, prospective only, are limited in time, scope, and character. At best, a prevailing party can impose tariffs on products of a losing party. Because disputes are over imports and exports, the merchandise subject to WTO compensation (commonly called “retaliation”) is not the merchandise subject to the dispute. Consequently, the WTO resolves disputes, when parties do not capitulate, through collateral attacks on other merchandise. Often the consumers of the prevailing country are the losers.

Domestic judicial procedures in the United States can move more quickly than the arbitral procedures at the WTO, and remedies are more generous and comprehensive. Deposits being held can be returned with interest, whereas a WTO order cannot see to the return of deposits at all. Obstacles to trade can be removed swiftly. Agencies can resist judicial orders for a long time but, in most instances, the U.S. market can reopen for subject merchandise more quickly than from decisions at the WTO because all of the procedural protections the agencies enjoy domestically they enjoy at the WTO in addition to the WTO’s own procedural obstacles for a complaining country. At the WTO there can be almost endless contention over remedies, whereas prescribed remedies in domestic law are known early in the process even though it may take a very long time to implement them.

These preferable remedies of the domestic judicial process are valid only when the process is fair and transparent and all the parties have reason to believe that they will be treated equally under the law. In general, U.S. judicial proceedings live up to this promise and, in the GPX case, did so for China.

The promise to China of reward and fair treatment from playing by the rules is being broken and, ironically, it is China standing accused of a disregard for the rule of law. According to the Ranking Member of the House Ways and Means Committee, Sander Levin (D-Michigan), “China is tilting the field of competition by not playing by the rules and this bill restores a key instrument of our nation to hold China accountable.” The Ranking Member of the Trade Subcommittee, Jim McDermott (D-Washington), added to the theme, “China has been breaking international trade rules . . . Now our own courts have naively weighed in . . .” Presumably, then, China naively trusted in the U.S. judicial system. Trade Subcommittee Chairman Kevin Brady (R-Texas) asserted that the legislation “provides a WTO-consistent tool to offset these market-distorting subsidies.” Except that the legislation is not WTO-consistent and the alleged subsidies, according to the United States, have no market to distort.
China challenged the United States at the WTO and won. It joined a suit in U.S. courts and won. Congress then stepped in and, as the White House trumpeted the result, “This legislation overturns that [Court of Appeals] decision,” even though it does not overturn the decision as to the parties in the case. So much for playing by the rules.

Next: Lessons For China From Canada

未能坚守的承诺

加入世贸组织这一重大决策十多年来给中国带来丰厚回报，贸易激增、经济腾飞。加入世贸组织的重要组成部分是接受法治。作为世贸组织一员，中国的职责之一是接受裁决程序和结果，但同时也享受利益。中国加入世贸组织后不久，美国等国就利用世贸组织争端解决机制递交针对中国的案件。

看到先前游离于世界法律体系之外长达半个世纪的国家，改变做法、加入世界体系，没有这更能让积极推广世界法制的有识之士更欣慰了。当面临第一起世贸案件时，中国迅速妥协、承认指控合法，放弃利用漫长的世贸组织争端解决机制推延不利结果的产生。

一段时间之后中国才意识到自己的慷慨之举不可能得到回报，尤其是美国的回报。美国一般充分利用每一环节抵制针对自己的指控。最著名的恐怕就是“零合法”案了，2004年世贸组织上诉机构判美国违法。十年来，美国置十多个世贸组织案件判决而不顾，依然通过各种途径沿用这一反倾销调查方法。但美国声称自己履行世贸章程，而中国没有。

不仅在世贸组织，中国在其他法律舞台上也为履行法治而付出代价。2006年11月之前，美国针对中国展开的贸易救济案件并不正式涉及中国政府，因为当时只有反倾销调查。反倾销指控围绕价格操纵，因此仅针对企业。当美国商务部开始接受反补贴调查申请时，中国政府再也不能袖手旁观了。反补贴调查针对政府行为及项目，中国政府必须答复美国发布的调查问卷、参与调查。

比较参与世贸争端解决机制，中国更不愿参与美国国内司法程序。其他国家政府也都不愿成为美国法庭前的原被告，放弃主权、让美国法官评判其政策。中国政府六年里一直回避在美国法庭开展贸易诉讼，但逐渐开始小心翼翼、犹豫地参与，成为GPX案中的利害关系方。

代表中国参与反补贴调查的律师一直敦促中国政府参与美国国内司法程序。世贸机制缓慢、且其救济举措只针对未来，时间、规模及特征都极其有限。最理想的结果是胜诉方可向败诉方征收额外关税。由于进出口商品的差异，最终被征收WTO惩罚性关税的商品并非最初的、纠纷产品。因此，WTO机制通过双方联手攻击其他产品解决纠纷，胜诉方的消费者成为受害者。

与世贸机制相比，美国国内司法程序进展更快，救济措施更慷慨大方、更广泛。交纳的惩罚性关税可带息返还，但是世贸裁决无法返还关税。且美国国内司法程序还可更快消除贸易壁垒。美国政府机构可长时间抵制司法裁决，但是该产品市场重新开放的速度将远远超过利用世贸机制解决贸易纠纷的速度，因为政府机构仅享受美国司法程序保护，无法再利用世贸机制提供的程序壁垒。在世贸机制下，双方可反复就救济争执不休，但是一开始就可预见美国国内司法程序，即使这一程序非常漫长。

只有当美国国内司法程序公平透明、双方都相信法律面前人人平等时，它的优越性才能充分体现。总体而言，美国司法实现了它的承诺，GPX案裁决有利于中国。

知法守法将带来回报的承诺没有实现，更讽刺的是中国却面临不依法行事的指控。众议院筹款委员会副主席、民主党人Sander Levin 批评：“中国凭借不守法增强自己的竞争力，这一法案旨在恢复我国的重要工具、敦促中国负责。贸易分会副主席华盛顿州民主党人Jim McDermott 附和道：“中国至今仍违背国际贸易规则，现在我们的法庭却发挥负面作用……”中国天真地信任美国司法体系。贸易分会主席德克萨斯州共和党人Kevin Brady 认为这一法案提供了“符合世贸章程、消除扰乱市场补贴的工具。”可是，这一法案违背了世贸规则，而根据美国自相矛盾的指责：受指控的补贴没有市场可扰乱。

Nothing Unites The United States Congress Like China (And Not In A Good Way): Treating China Like Canada (Maybe Even Worse)

Dr. Elliot J. Feldman — Tue, 20 Mar 2012 09:12:29 -0600

中文请点击这里

We begin today one story in three parts, “Nothing Unites The United States Congress Like China (And Not In A Good Way): Treating China Like Canada (Maybe Even Worse)” by Dr. Elliot J. Feldman. Part One, “Rewriting Subsidies Law To Fit Chinese Facts,” examines the first legislation expressly for trade with China passed by the United States Congress and signed by the President since China’s accession to the WTO a decade ago. Over the years various bills have been introduced aimed at China, especially on currency valuation, but H.R. 4105, mandating the imposition of countervailing duties determined in investigations of subsidy allegations in non-market economies, is the first to win bipartisan and presidential support.

Part Two, which will appear next week, sharply criticizes this legislation because it breaks a promise to China concerning acceptance of the international rule of law and does not conform with WTO obligations. Dr. Feldman demonstrates that the passage of the new law, in deliberately overturning a judicial decision while failing to comply with a related WTO decision, suggests to China that it cannot rely on the rule of law to settle trade disputes with the United States.

Part Three, which will appear two weeks from now, explains that the American treatment of China with respect to the WTO and U.S. domestic law is reminiscent of the American treatment of Canada with reference to NAFTA, the WTO (the GATT at the time) and U.S. law. The United States, after losing trade disputes in the judicial process, changed the law. Dr. Feldman describes the impact of that conduct on trade relations with Canada and predicts that China will react differently and with much greater risk for the international trading system.

Rewriting Subsidies Law To Fit Chinese Facts

The Congress of the United States has been gridlocked for years now by partisan bickering on almost every issue to come before it but one – China. And, in confronting China, the suddenly bipartisan Congress usually has presidential support. As Bill Reinsch, President of the National Foreign Trade Council, recently stated, “For the last 20 years, every presidential challenger has run against every incumbent by accusing him of being soft on China. Any intelligent, prepared administration will do its best to inoculate itself, and this administration has chosen to do that by launching much more aggressive enforcement [of trade actions against China].”

The Administration of Barack Obama and all the remaining Republican candidates for President agree that China trades unfairly in the international marketplace. In a stunning bipartisan display, it took Congress less than three months to become seized of a need for a legislative change and to complete the process. The process itself unfolded in less than a week, and it took only a few days for the President to sign into law the congressional action.

What Happened Before Congress Stepped In?
The United States Court of Appeals for the Federal Circuit, as previously reported on this blog, ruled on December 19, 2011 that U.S. law forbids the application of countervailing duties to non-market economies. GPX International Tire Corporation et. al. v. United States. On March 8, 2012, the U.S. House of Representatives completed the process of overturning the decision of the Court of Appeals, rewriting U.S. law.

From 1986 until November 2006, U.S. law on the subject of non-market economies had been governed by a Court of Appeals decision, Georgetown Steel Corp. v. United States, 801 F.2d 1308 (Fed. Cir.1986). By defining “subsidy” to be a financial contribution by a government that distorts a market, there could be no “subsidy” without a market and, as the Georgetown Steel court suggested, non-market economy governments “would in effect be subsidizing themselves.”

Democrats seized control of Congress in the November 2006 mid-term elections and the Department of Commerce, two weeks later, accepted a petition for countervailing duties on imports of coated free-sheet paper from China. It promptly became routine for petitioners to couple countervailing duty with antidumping petitions, and routine for the Department of Commerce to find both dumping and subsidies by applying, in both, non-market economy methodologies that repudiate domestic values in favor of surrogate prices from third countries.

The United States Court of International Trade (“CIT”) had struck down the subsidy finding of the Department of Commerce on GPX tires twice before, in 2009 and in October 2010, but on narrower grounds effectively affirmed by the World Trade Organization on a Chinese appeal in March 2011. These decisions did not conclude that the application of countervailing duties was forbidden by U.S. law, nor by WTO obligations, but that countervailing duty and antidumping cases potentially lead to a double-counting that unlawfully would exaggerate remedies. The CIT had ruled that the Department of Commerce could not pursue both simultaneously without a methodology to solve the double-counting problem.

The Court of Appeals in the GPX case skipped over the double-counting problem and went straight to the underlying premises of Georgetown Steel. The law, the Court of Appeals concluded, does not permit the assessment of countervailing duties against non-market economies.

Congress To The Rescue
The U.S. Congress in 2012 agrees on almost nothing except an antagonism toward China. Maps and globes still display China as a huge land mass, and most Americans believe that some 1.3 billion people are working there to produce goods that will overwhelm American manufacturing and put Americans out of work, all with the aggressive financial support of a centralized Communist Government.

This capitalist image is little changed from the American caricature of China since the founding of the People’s Republic in 1949. The traditional, sympathetic American view of China, captured best, perhaps, by Pearl Buck’s The Good Earth, transformed with the Cold War. In both the Korean and Vietnamese Wars, Americans envisioned Chinese hordes pouring southward into narrow peninsulas, threatening the survival of nascent democracies. Now, Americans envision those same hordes, but hard at work in soulless factories, exploiting child labor, for the advancement of the Communist state against western capitalism.

Successive Presidents have strived to cure Americans of these distorted images, but every two years when it is time to elect a new Congress, the classic demagoguery of conjuring a common foe has fixed China as a popular target. The unanimous Court of Appeals decision from a three-judge panel chaired by the Chief Judge in December 2011 started a clock because, without a successful request for rehearing en banc or a successful writ of certiorari to the Supreme Court – both improbable – all of the pending and prior countervailing duty determinations against China would be stopped or reversed. Only Congress could prevent a chaotic turnabout, a role Congress (now Republican, confirming the bipartisan antipathy toward China) welcomed because of its popular resonance.

The House of Representatives Ways and Means Committee referred the corrective legislation to the full House on the same day it had been introduced to the Committee, February 29. Less than a week later, on March 6, the Committee’s Republican Chair moved to suspend the rules in order to expedite passage of the bill. All on that same day the House suspended the rules, debated the bill, proceeded through various rule technicalities and voted the bill itself 370-39. It went to the Senate the next day.

On March 7, the Senate read the bill twice, considered it, read it a third time, and passed it without amendment by Unanimous Consent. It was sent to the White House one day later, and was signed by the President on March 13. For anyone wondering how often bills go from committee introduction to presidential signature in a fortnight: not often, but not often is there legislation targeting China on which almost everyone agrees.

What The Legislation Does, And Does Not, Do
H.R. 4105 (112th Congress), “To apply the countervailing duty provisions of the Tariff Act of 1930 to nonmarket economy countries, and for other purposes,” statutorily directs the imposition of countervailing duties on merchandise imported from non-market economy countries with one exception, where “the economy of that country is essentially comprised of a single entity.” This language reflects continuity with one aspect of Georgetown Steel (the reference to subsidizing itself), but also supports the rationale offered by the Department of Commerce in 2007 for finding subsidies in China: there is enough of a market in China, according to the Department of Commerce, to find subsidies, but not enough to treat China as a market economy, nor to find any sector sufficiently market-based to be treated as “market oriented.” It is a position probably indefensible in logic or law prior to H.R. 4105, but now provided with some statutory support, albeit still indirect.

In response to an initial Republican resistance to the new legislation, voiced by House Ways and Means Committee Chairman Dave Camp (R-Michigan), the bill contains a second section, “Adjustment of Antidumping Duty In Certain Proceedings Relating To Imports From Nonmarket Economy Countries.” Camp was concerned that the legislation could violate WTO obligations enunciated in the March 2011 Appellate Body decision warning against double-counting. Officially, the Obama Administration has avoided public pronouncements as to whether the legislation accomplishes Camp’s goal. At the very end of his March 13, 2012 White House press briefing, Administration spokesman Jay Carney was asked:
“Also, the China commerce minister believes that the bill that President signed into law today should not only break the WTO rules but also sort of violate the U.S. domestic trade laws, which America -- trade laws.”

Carney answered evasively:

“Well, I haven’t heard those comments. Obviously the President signed the bill because he thought it was -- it merited signing. So I don’t have any comments with regards to that official's statement.”

Privately, nonetheless, the White House appears convinced that this section of the bill assures that the legislation conforms with WTO obligations. Unfortunately, China’s Commerce Minister is right. The legislation does not comply with WTO obligations.

H.R. 4105 directs the Department of Commerce when finding both dumping and subsidies, to “reduce the antidumping duty by the amount of the increase in the weighted average dumping margin estimated by the administering authority [i.e., the Department of Commerce] . . .” This reduction depends, however upon the Department of Commerce’s ability to “reasonably estimate the extent to which the countervailable subsidy . . . in combination with the use of normal value [from the antidumping calculation] has increased the weighted average dumping margin for the class or kind of merchandise.” When it cannot make that estimate, it cannot make the adjustment, but by statute it must still assess countervailing duties. This statutory mandate is not materially different from the CIT conclusion that effectively halted countervailing duty cases against merchandise from China inasmuch as it instructs the Department of Commerce to do something it does not know how to do, but whereas the CIT concluded that the Department of Commerce consequently should not do it, the statute instructs that it must.

The CIT had ordered the Department of Commerce to figure out a solution to the double-counting problem before finding subsidies. The new legislation orders the Department to find subsidies and then figure out a solution. Under this instruction, the Department is no more likely to figure out a lawful solution than before, but now it will, under statutory direction, double-count. Companies in non-market economies will be required to contest the illegal double-counting on a case-by-case basis.

Finally, the new law contains an astonishing provision regarding its effective date because it “applies to . . . all proceedings initiated . . . on or after November 20, 2006.” The Department of Commerce thus is ordered by statute to revisit all countervailing duty petitions filed against China and Vietnam since November 20, 2006 and find subsidies without regard to double-counting and without regard to decisions of the CIT and the Court of Appeals for the Federal Circuit. It then, to the extent it can figure out how, must try to adjust for double-counting. Petitioners are granted the benefit of a law that did not exist when they filed their petitions.

Belt And Suspenders: Request For Rehearing
The United States and its petitioning allies could avoid reversal of the final subsidies determination in GPX International Tire Corporation and other countervailing duty cases against China and Vietnam only by congressional act or by en banc appeal in the Court of Appeals for the Federal Circuit by March 5. As quickly as Congress moved, the legislation was not in place on time.

The U.S. Department of Justice and the petitioners, including above all the United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Workers International Union of the AFL-CIO-CLC, filed separate petitions at the Court of Appeals for rehearing en banc on March 5. Because the Court of Appeals decision is final (but subject to further appeal), H.R. 4105 could not overturn it as to the parties in the GPX case. Only the court can reverse the specific outcome. The legislation does reach twenty-four existing orders and six pending investigations, none of which went to final decision in the U.S. courts, but only the rehearing petitions can help the GPX petitioners.

Next Week: The Broken Promise to China

今天开始，我们将分三期连续刊登费德门博士的评述《中国将美国国会团结在一起——中国惨遭加拿大待遇(甚至不及)》。第一部分——《重写反补贴法以适应中国特色》，讨论自中国加入世贸组织十年来第一部针对美中贸易制定的美国法律。过去几年里，针对中国及其货币政策的法案数不胜数，但是H.R. 4105是第一部获得两党及总统支持、允许向非市场经济体征收反补贴税的法案。

我们将于下周刊登评述的第二部分，严厉批评这一法案，因为它违背了美国为鼓励中国接受国际法体系而做出的承诺，且不符合世贸组织章程。费德门博士指出这一法案使法院裁决失效并与世贸组织裁决相左，因此它暗示中国依靠法治与美国解决贸易争端是死路一条。

文章的第三部分指出美国依据世贸组织章程及美国法律处理美中贸易，与美国依照世贸组织、《北美自由贸易协定》及本土法律处理美加贸易如出一辙。美国在司法程序中落败后，立即修改法律。费德门博士将分析此举对美加贸易关系的冲击，并预测中国将做出不同反应、且面临更多威胁。

重写反补贴法以适应中国特色

美国国会多年来一直对急需讨论的事项争执不休，只有一个例外——中国。当与中国正面冲突时，国会总是突然统一战线，还获得总统支持。就像美国全国对外贸易委员会( National Foreign Trade Council) 主席Bill Reinsch所指出的那样：“过去二十多年里，每个竞选总统职位的在野党候选人总是指责总统对待中国太软弱。包括本届政府在内的任何智慧、准备充分的政府都竭尽全力（针对中国）采取更严厉的贸易举措。”

奥巴马政府以及共和党候选人都一致认为中国采取不公平贸易政策。国会仅用三个月时间就通过这一法案令人惊讶，几天后总统就签署了这一法案。

国会介入之前

本博客曾报道美国联邦上诉庭于2011年12月19日宣判——美国法律禁止向非市场经济体征收反补贴税（见GPX轮胎公司诉美国一案）。2012年3月8日美国众议院通过法案，驳回上诉庭裁决，重新书写美国法律。

自1986年至2006年11月，乔治城钢铁公司诉美国一案的裁决是美国处理与非市场经济贸易的法律依据。这一裁决指出，“补贴”是政府采取的扰乱市场的财政行为，因此没有市场即意味没有补贴，而非市场经济体政府只是为自身提供补贴。

2006年11月中期选举时，民主党重新掌控国会，美国商务部两周后立即接受反补贴调查申请对国产铜版纸展开调查。此后，美国企业习以为常地提出双反调查申请，而美国商务部也养成采用非市场经济体计算方法、对中国产品双重征税的做法。

美国国际贸易法院分别于2009年及2010年10月驳回美国商务部在GPX轮胎案中做出的反补贴裁决。世贸组织2011年3月的裁决支持这一法院裁决，只是适用范围稍窄。这些裁决并未认定对非市场经济体征收反补贴税属于违法行为或违背世贸承诺，而是指出同时展开双反调查可导致增加惩罚性关税，即双重征税。美国国际贸易法院裁定商务部应在修正双重征税后才可同时展开双反调查。

上诉法院在GPX一案中跳过双重征税，直接讨论乔治城钢铁案的前提，认为这一案例法禁止向非市场经济体征收反补贴税。

国会救驾

美国国会在2012年几乎未就任何议案达成协议，仅在针对中国的行动中意见统一。中国疆域辽阔，几乎所有的美国人都相信1.3亿中国人在遥远的东方努力生产产品直至取代美国产业，造成大量美国人失业。而这一切都离不开中国共产党中央政府提供的财政支持。

自1949年新中国成立以来，资本主义美国对中国的印象并未改观。传统、同情中国的美国观点以赛珍珠的《大地》为代表，但这一观点随着冷战的推移而转变。在越战和朝鲜战争中，美国人看到中国人滔滔不绝地涌入半岛，威胁民主国家的存亡。当前，美国民众眼前浮现的是数以万计辛勤劳动的工人机械地做着枯燥乏味的工作，这其中还包括备受剥削的童工。他们的劳动成果是共产党中国与西方列强竞争的重要支柱。

历任美国总统都努力改变美国人心目中这些错位印象，然而两年一次的美国国会选举都选择中国作为批评目标。2011年12月上诉庭三位法官意见一致的裁决开启了计时器——如果没有全体法官出庭重新判决、或是诉状移送令移送至最高法院（两者都不可能），则所有先前已宣布的调查结果都将失效、当前正展开的反补贴调查也将被迫中止。只有美国国会可以改变这一切，而国会的这一举动深入民心（现在共和党人也承认两党对华态度一致）。

众议院筹款委员会在委员会讨论该议案的当日，也就是2月29日，将这一议案提交众议院全体讨论。不到一周，即3月6日，该委员会共和党主席又暂停常规以加快这一法案的通过。同日，众议院也暂停常规，讨论并以370票对39票通过了这一议案。第二天，这一议案送交参议院。

3月7日，参议院讨论并全票通过了这一议案。次日这一法案被送交白宫，奥巴马总统于3月13日签署了这一法案。人们也许会问，如此迅速讨论是否常见？答案是并不常见，但快速通过人人赞同的中国议案却非常普遍。

法案的权责范围

第112届国会众议院第H.R. 4105号法案——《非市场经济国家适用1930年关税法反补贴条款》，正式立法明文要求向非市场经济国家出口的商品征收反补贴税（当这个国家仅有一个经济体时例外）。这一法案仅沿用了乔治城钢铁案中对补贴的论述，同时支持美国商务部2007年就中国产品征收反补贴税的逻辑：中国存在一定市场经济活动，因此存在补贴；但是不足以成为市场经济体，因为没有一个行业以市场为指导。通过这一法案前，这一立场无论从逻辑还是法律角度看都立不住脚，但是现在忽然却拥有法律支持。

一开始，筹款委员会主席米歇根州Dave Camp众议员为首的众议院共和党人抵制这一新议案，因此这一议案新增了“调整向非市场经济国家出口品征收的反倾销税。”Camp众议员担心这一议案将违反世贸组织承诺，因为2011年世贸组织上诉机构的裁定禁止双重征税。奥巴马政府在公开场合避免就这一议案是否实现了Camp的目标发表官方评论。2012年3月13日白宫新闻发布会上，有记者提问：“中国商务部部长认为总统签署的这一法案不仅违背了世贸章程，也违背了美国贸易法。”白宫新闻发言人Jay Carney回答：“我并未获悉这一评论。总统签署了这一法案，显然他认为这一议案应当成为法律。因此我对中国官员的意见没有任何评论。”

在私下场合，白宫坚信这一法案符合世贸组织章程。遗憾的是，中国商务部长的意见正确，这一法案与世贸章程相左。

H.R. 4105指令美国商务部在调查发现反补贴、反倾销同时存在时，应“降低反倾销税税率，即减去调查机构估计的反倾销税平均税率。”但是降低幅度取决于“美国商务部合理估计反补贴税、以及在反倾销调查中使用的正常价值导致这一类产品反倾销税平均税率的增加幅度。”当美国商务部无法估计这一幅度时，它就无法调整平均税率，但是根据法律规定，它还必须征收反补贴税。这一法律以及国际贸易法庭停止反补贴调查的裁决都针对美国商务部行动，但是国际贸易法庭最后总结认定美国商务部应停止行动，但是这一法案却要求商务部必须采取行动。

国际贸易法庭下令美国商务部在征收反补贴税前找出解决双重征税的方法。新法案却要求商务部先征收反补贴税然后找出解决方案。新法案虽然已经出台，但是美国商务部却并未增加解决双重征税这一难题的可能性，而且还必须依法双重征税。非市场经济国家的企业则必须针对双重征税逐一通过法律途径抗争。

最后，这一新法案的生效日期亦令人惊愕，因为这一法案适用于“2006年11月20日起展开的反补贴调查。”美国商务部因此必须忽视美国国际贸易法庭及上诉庭裁决，重新审理自这一日期以来所有针对中国和越南产品的反补贴调查。并在能力允许的范围内，找到克服双重征税的方法。调查申请人因此享受他们在递交申请时法律并未授予的权利。

申请重新审理

美国政府及其调查申请方只可通过两个渠道维持GPX轮胎案以及其他针对中国和越南产品展开的反补贴调查的结果：国会行动或是在3月5日前通过联邦上诉庭重新审判。虽然国会加速审议通过这一法案，但还是迟了一步。

截至3月5日，美国司法部以及劳工联合会等申请人分别向联邦上诉庭提出重新审理要求。因为上诉庭的裁决已为最终裁决，因此H.R. 4105不适用于GPX轮胎案中的利害关系方。只有法院可以驳回这一裁决。这一法案也无法触及已经颁布的24项反补贴令以及6项正在进行的调查（法院未就其中任何一项调查做出最终裁决），只有重新审理可以帮助GPX案的反补贴调查申请方。

Driving Over The Brink

Dr. Elliot J. Feldman — Fri, 17 Feb 2012 15:43:23 -0600

Two years ago, we reported that China was initiating an investigation, based on dumping and subsidy allegations, into imports of U.S. automobiles. We warned that the published petition was more a political than a legal document, telling a peculiar and nationalistic version of industrial history and concentrating on alleged subsidies, particularly for the development of electric cars, that had nothing to do with the subject merchandise. The petition was a political statement about a rising China and a declining United States.

Although the implementation of the WTO trade obligations into Chinese law sets schedules for antidumping and countervailing duty proceedings, China’s Ministry of Commerce (“MOFCOM”) is not slave to the prescribed deadlines. It does not publish petitions upon receipt, nor even generally make their existence known (although it often leaks information about them to favored Chinese lawyers). It may decide, based on its own judgment of the public interest, whether to initiate an investigation, regardless of a petition’s worthiness. It does not adhere to deadlines to initiate investigations following the receipt of petitions it accepts, nor does it adhere to deadlines to announce results. Consequently, when investigations are initiated, and when results are announced, inevitably arouse suspicions as to whether timing has been political and reactive, and whether outcomes adverse to foreign interests may be retaliatory.

China’s December 14, 2011 announcement that it was imposing antidumping and countervailing duties on certain automobiles from the United States, culminating an investigation begun conspicuously in November 2009 on the eve of President Obama’s arrival in Beijing for a state visit and just after he had imposed safeguard duties on Chinese tires, was equally conspicuous in its timing because it followed almost immediately upon the initiation of American investigations into Chinese solar cells and after China’s appeal of the tires safeguard at the WTO had been denied. According to MOFCOM’s internal schedule, the imposition of duties followed a final determination by more than seven months.

The imported cars subject to duties do not boast green technology, but the petition had complained at length about green subsidies, especially for the development of electric cars that China and the United States had pledged, at the time of the announced initiation of the investigation, to develop together. The cases on cars and solar cells, as they refer and relate to green technologies, are linked, at least as much as the cases on cars and tires. China may have decided to impose duties on the American cars most any time during the last seven months or more (regardless of the “official” date now displayed on the record of the case), but it is reasonable to interpret the timing of the announcement, if not of the decision, as retaliatory, whether because of China’s failed appeal on tires, or because of the American investigation into solar cells.

The December 14 announcement is notable in several respects. There is consensus that the duties will have little or no effect on trade in automobiles. The decision has aroused almost universal agreement that it is retaliatory, and many Chinese (experts and former officials) have asserted as much. The Obama Administration and Congress have expressed dismay if not outrage. Although the decision required an injury determination, the paltry importation of cars from the United States, particularly in market niches not served by domestic manufacture in China, could inflict no discernible injury on a Chinese industry. It is the injury determination, above all, that makes the action almost purely political, albeit the subsidy judgment, in particular, is well-founded.

Retaliation
Chinese themselves seem to boast that trade remedy actions against products from the United States are retaliatory. Zhou Shijian, cited as a “senior expert on China-US trade” from Tsinghua University, has been quoted as calling the duty on American cars “proper and equal,” a “counterattack to US trade investigations aimed at China.” Li Zhongzhou, identified as “a former official from the Ministry of Commerce and a WTO expert from the EU-China Trade Project,” has been quoted saying, “China should strike back in its own good time as the US always stirs up investigations targeting China by routinely using trade remedy measures.” China Daily has quoted Zhou Shijian saying, “It’s reasonable self-defense for China. An eye for an eye is a sound way for China to face trade disputes with the US under WTO regulations.”

The South China Morning Post immediately labeled the announcement of duties on American cars as “Beijing’s retaliation after China lost its final appeal to the WTO in September against a 2009 US move to impose anti-dumping duties on tyres imported from China.” Of course, the United States did not impose anti-dumping duties on imported tires, instead relying on the safeguard provisions of China’s accession protocol to the WTO, and China’s WTO appeal never stood any chance of success because it was wrong on the law. The automobiles investigation launched in November 2009 resulted in duties in December 2011 just as the tires safeguard decided by Obama in November 2009 resulted in a WTO appellate decision in September 2011. The initiation dates made the outcome dates linked; there was no need for a calculated retaliation.

Timing, however coincidental, is at the heart of the conspiracy theories about retaliation. “Experts” in both countries assume that officials in the other country control timing. That China does not disclose the receipt and consideration of petitions contributes to the suspicions, and Chinese make assumptions about U.S. control notwithstanding the legal and practical impediments.

The Chinese declarations of retaliation are unfortunate because they assume that the United States orchestrates trade attacks against China. The U.S. Department of Commerce and the U.S. International Trade Commission do not solicit trade remedy petitions, and are bound by law, with minimal discretion, to initiate investigations when petitions satisfy legal requirements. Chinese experts may be skeptical given their experience in China, but trade remedies in the United States reflect a free market for petitioners within a law that has no public interest exceptions: the government must investigate when an identifiable industry files a qualifying petition.

It is not as if the U.S. agencies are taken by surprise by petitions, nor unable to encourage or discourage them. Both trade agencies assist prospective petitioners with drafts so that, when actually filed, a petition is likely to succeed in launching investigations. In the process of providing such assistance, which is undertaken in confidence (thereby preserving a petitioner’s advantage of surprise), the agencies can signal whether a petition is likely to succeed and whether it appears well-founded. Nonetheless, any industry determined to file can do so, whenever it wants. And when it files, its non-confidential version instantly becomes a public document.

In theory, the same rules apply in China. Any industry can file a trade remedy petition whenever it likes. However, MOFCOM does not reveal when it has received a petition, can decide whether to initiate an investigation without explanation, and can decide when to act because no one knows when a petition has been filed. Moreover, MOFCOM does not release full information about a petition and thereby arouses suspicion that MOFCOM itself might sometimes be the author. The petition against American automobiles could have been a MOFCOM document because it could not have been prepared by a private petitioner in the very short interval between the Obama safeguard decision on Chinese tires and MOFCOM’s initiation of the investigation.

Inside U.S. Trade quotes “a U.S. business source” in its December 16, 2011 edition complaining about Chinese “tit-for-tat” because the results on American automobiles were released “just days after the Office of the U.S.Trade Representative announced it would pursue a legal challenge at the World Trade Organization against Chinese AD/CVD on chicken ‘broiler products’ from the U.S.” The same “source” complained about China’s initiation of an investigation of U.S. shipments of polysilicon (essential for solar cell manufacture) right after the U.S. opened its investigation of Chinese solar panels and cells. In the normal course of business, such investigations, which must be based on petitions satisfying WTO rules, could not be launched instantly, but in an environment of mutual suspicion the normal course of business is regarded as captive to government control, and MOFCOM can act on petitions without warning and whenever it likes.

Subsidies
The United States is accustomed to accusing other governments of subsidizing industries exporting to the United States in violation of world trade rules. Not all subsidies contravene the rules of the World Trade Organization, but subsidies deliberately in support of exporting industries usually are. The routine American complaint is that American companies are the best in the world, able to compete with anyone, but not able to compete with foreign governments.

Because Communist countries made state enterprises their global competitors, the United States passed special laws to deal with them. For all that China has done to make itself a capitalist competitor, it does not deny Communist Party control and does not hide state enterprises behind private cloaks. The United States insists, therefore, that China is a non-market economy and that all of its state enterprises are effectively subsidized by the state.

The dilemma for the United States, amplified in the most recent decision of the U.S. Court of Appeals for the Federal Circuit, is that petitioners cannot challenge subsidies in non-market economies because subsidies are countervailable (contrary to international trade rules) only when they distort markets. Non-market economies have no markets to distort. The Court of Appeals therefore has ruled that countervailing duty cases cannot be brought against non-market economies, while state control of the economy implies that almost everything is unfairly subsidized.

Americans have grown so accustomed to perceiving foreign governments as subsidizing industry that they have become close to unconscious about the manifold subsidies in the U.S. economy. What they often see as illegal in other countries, such as European or Canadian farm subsidies, they see as innocently in the public interest in the United States. For many years, for example,the United States imposed countervailing duties on Canadian provincial crop insurance even as American crop insurance was more extensive and generous. The only difference was that Canadian agriculture was exported to the United States while little American agriculture made its way into Canada. No one seemed to observe that foreign agriculture would have difficulty competing in the United States against the heavily subsidized domestic product.

Americans became especially unaccustomed to foreign governments challenging American subsidies, but the Chinese challenge in 2009 was made inevitable by the American Recovery and Reinvestment Act. The United States had begun countervailing alleged Chinese subsidies in 2006, targeting especially Chinese bank loans because of state ownership of the banks. All Chinese state enterprises became targets because they were state enterprises. Now, the U.S. Government had acquired majority shares in many U.S. banks and in much of the automobile industry. The United States insisted this state ownership was temporary, but in no other significant way was there a distinction between Chinese and American ownership. If the United States were to countervail Chinese state ownership and bank loans and guarantees, China (and other countries) inevitably would begin to countervail American government ownership.

The solution to this escalation in world trade antagonism and protectionism, triggered by global recession and government rescues,was to reconsider the countervailing duty regime and what was to be considered an illegal subsidy. Instead, the United States was introduced to countervailing duties from the other side, at the very moment, albeit coincidentally, when it learned that this weapon was no longer available to the United States in its trade contests with China.

Symbolic Results And Injury
China assesses a 25 percent tariff on all imported automobiles, a price that has been very effective in persuading foreign manufacturers to produce in China. Consequently, only the most expensive cars for which buyers are relatively price-insensitive are manufactured elsewhere and imported into China. Manufacturers cannot afford to export to China cars that need to compete on price.

The additional tariffs China is now imposing on automobiles manufactured in the United States will have little practical effect. Chinese buyers interested in BMW sport utility vehicles from South Carolina that already cost upwards of $70,000 in China will not be deterred by a 2 percent surcharge, nor will buyers of Mercedes M-Class, R-Class, and GL-Class SUVs choose something else because of a 2.7 percent surcharge. Besides, only about 29,000 BMW and16,000 Mercedes in these classes were exported to China last year.

General Motors will have shipped in 2011 only around 11,000 SUVs and large vehicles, particularly the Buick Enclave, the Cadillac STS and the Cadillac Escalade. Even with a 21.8 percent duty the impact on sales probably will be negligible. Honda, selling 362 TL Model Acuras in China into December 2011, can hardly be concerned about a 4.1 percent antidumping duty. Only Chrysler, perhaps, needs to be concerned, with a 15 percent overall surcharge and substantial exporting ambitions, but for now the only vehicles it is shipping that are affected include the Jeep Grand Cherokee and, in future, its 300 Model large sedan. In the first ten months of 2011, Chrysler sold 13,686 Jeeps in China.

BMW, Mercedes, and Honda were all found free of countervailable subsidies, presumably because they were not part of the Obama bailout. The likelihood that they are dumping these large and expensive vehicles in China is small. The message of the Chinese decision, then, is that foreign manufacturers wishing to sell cars in China should manufacture them in China, not in the United States, because they could face harassment, if not legitimate duties, coming from the United States. China apparently wants to make the likes of BMW and Mercedes and Honda think again before they expand manufacturing in the United States. They should prefer, China seems to be telling them, to create manufacturing jobs in China.

For the American companies, the message was also indirect. Ford was investigated even though it does not export U.S.-made vehicles to China at all. The point seems to have been that Ford turned down federal rescue funds in 2009 and so was found in the investigation to be free of countervailable subsidies – even though there was no product to countervail. Investigating Ford was another way of sending a message to General Motors and Chrysler, who were found with countervailing duty rates of 12.9 percent and 6.2 percent respectively.

In order to impose antidumping and countervailing duties, China had to find that the American imports caused injury to a Chinese industry. MOFCOM raised the standard, dutifully declaring that the dumped and subsidized imports “substantially damaged China’s auto industry,” even though China’s auto industry does not manufacture any vehicles of the size, style, or price range of the subject merchandise and the number of imports is almost negligible. The injury determination thus was not credible, seeming to confirm MOFCOM’s political intent.

The U.S. Reaction
The American reaction to the new Chinese tariffs was predictably as exaggerated as China’s triumphalism about finding countervailable subsidies and dumping. U.S. Trade Representative Ron Kirk called China’s decision part of a “disturbing trend.” In a joint, bipartisan statement (nothing rallies congressional unity like China), House Ways & Means Committee Chairman Dave Camp (R-MI), Ranking Committee Member Sander Levin (D-MI), Trade Subcommittee Chairman Kevin Brady (R-TX), and Trade Subcommittee Ranking Member Jim McDermott (D-WA), saying they were “extremely concerned,” declared, “China’s actions are unjustifiable, and unfortunately, this appears to be just one more instance of impermissible Chinese retaliation against the United States and other trading partners.” They added, “This action appears to violate China’s WTO commitments, and we urge the Administration to exercise all available options to enforce U.S. rights, including, as appropriate, enforcing U.S. rights at the World Trade Organization.” Fortunately, Ambassador Kirk refrained from claiming the Chinese action violative of WTO obligations, and new Commerce Secretary John Bryson, in a coincidental speech criticizing China, said nothing about the automotive tariffs.

Policies to save the American automobile industry from extinction in the recession exposed exported vehicles to unfair subsidy claims. China was entirely justified in challenging those subsidies. China probably was less justified, however, in finding dumping of a handful of third country luxury vehicles, and arguably not justified at all in finding “serious damage” to a Chinese industry in the absence of a like competitive product. Yet, the specifics of this case are not what the case is about. Instead, the case appears to be about messages, subliminal and blunt, about state aid for green technologies and about domestic and foreign manufacture, affecting trade policy more than trade, and sales attitudes more than sales.

The House of Representatives leaders who issued the joint statement probably should be “extremely concerned,” but more by the competitive messaging than by competition, and more by outspoken boasting about retaliation than about the effectiveness of the WTO. The cars case is troubling, not because it will impede trade in cars, but because it threatens to impact trade relations and competition more generally and in the long term.

The Sun Does Not Shine on Trade Policy: Hypocrisy in Technological Green

Dr. Elliot J. Feldman — Wed, 18 Jan 2012 16:53:41 -0600

The Plan To Make The Planet Green In Cooperation With China

President Barack Obama committed his Administration soon after his election in November 2008 to the development of green technologies. He posited that investment in the creation of systems and equipment that would roll back climate change would create jobs while saving the planet, and as everyone in every country ultimately would share the mission of saving the planet, an American lead in green technologies would fuel exports. President Obama decided in the depths of the Great Recession that doubling American exports in five years was a key to recovery. He could see before him a coherent agenda: saving the planet and the economy at the same time by creating new jobs in new industries.

President Obama’s plans for green technology were compatible with China’s, whose published green technology plan in 2007 addressed the problems of energy dependence and severe, deadly pollution from coal. On the occasion of a state visit just one year after his election, in November 2009, President Obama enlisted China in his plan, although arguably it was the other way around. With agreement that “a green and low-carbon economy is essential and that the clean energy industry will provide vast opportunities for citizens of both countries in the years ahead,” China and the United States, according to the White House, committed “to strengthen cooperation in promoting clean air, water, transportation, electricity, and resource conservation” in a Ten Year Framework on Energy and Environment Cooperation. A new U.S.-China Energy Efficiency Action Plan was to be the vehicle for “the United States and China [to] work together to achieve cost-effective energy efficiency improvements in industry, buildings and consumer products through technical cooperation, demonstration, and policy exchanges. Noting both countries’ significant investments in energy efficiency, the two Presidents underscored the enormous opportunities to create jobs and enhance economic growth through energy savings.”

In pursuit of these goals, China and the United States created a joint “Clean Energy Research Center” to develop energy efficiency in buildings. They launched the “U.S.-China Renewable Energy Partnership” to “chart a pathway to wide-scale deployment of wind, solar, advanced bio-fuels, and a modern electric power grid in both countries and [to] cooperate in designing and implementing the policy and technical tools necessary to make that vision possible. Given the combined market size of the two countries,” proclaimed the White House Press Statement of November 17, 2009, “accelerated deployment of renewable energy in the United States and China can significantly reduce the cost of these technologies globally.”

China and the United States both understood well in 2009 what it meant for the two governments to commit to the development of green industries. Both contributed abundant research and development funds, China relying on its traditional state apparatus and Obama tapping into the $734 billion from Congress in the American Recovery and Reinvestment Act. In both countries, local, state, county and provincial governments are competing to attract industry and jobs, so where central or federal government funds have been available, non-central and non-federal financial incentives have been supplemental and generous. Once the Presidents of both countries declared their respective and joint commitments to this sector, the money flowed.

Collaboration Collapses

Less than a year after the announcements of collaboration between China and the United States, on October 15, 2010, the United States Steelworkers filed a petition, under Section 301 of the trade law, containing “allegations relating to a variety of Chinese practices affecting trade and investments in the green technology sector.” The United States Trade Representative (“USTR”) investigated and resolved a number of the allegations, primarily through Chinese commitments to terminate programs (and hence retard the global move to green technologies to which the two countries had pledged just a year earlier), but in December 2010 the United States formally requested consultations at the World Trade Organization (“WTO”) concerning China’s “Special Fund for Wind Power Manufacturing,” which the United States alleged was an illegal import substitution subsidy. Some other allegations remained under investigation at USTR.

Import substitution subsidies are decidedly protectionist, expressly to protect jobs by restricting inputs to domestically manufactured products. They are forbidden under WTO rules. They do not increase the dissemination of a finished product, and to the extent they are perceived as necessary, they may be substituting a less competitive component whose jobs, consequently, belong in the country most efficient in production. The United States certainly had a legitimate complaint, but the bigger picture remains the bilateral commitment to green technologies and the U.S. initiative to question China’s pathway to accomplishment of the commitment.

The Chinese programs, like many similar programs in the United States, were designed to “accelerate deployment of renewable energy,” although sometimes the Chinese programs expressly favored Chinese products. They were a logical response to the agreement, in 2009, that “climate change is one of the greatest challenges of our time.” According to the White House, “The two sides [China and the United States] maintain that a vigorous response is necessary and that international cooperation is indispensable in responding to this challenge.” Both countries interpreted “vigorous response” to mean, at a minimum, substantial financial aid to nurture infant industries. Pursuit of jobs meant, at least for China, favoring Chinese production.

Commitments of funds, whether through grants or loans or loan guarantees or tax breaks, are made through public policy choices. Deliberate decisions are made when money is spent or taxes forgiven. Even as some economists may discourage the state from exercising such choices and prefer the market to pick all winners and losers, no modern economy functions without governments offering incentives for some industries. Indeed, even the trade laws have provisions for “infant industries.” Nonetheless, the trade laws generally oppose government subsidies in a quest for “pure” competition.

The trade laws, especially in the United States, delegate to private interests rights to countermand public policy. They are designed to encourage competition and inhibit government aid. However much the Chinese and American governments may have agreed to collaborate in green technologies and support the development of related industries, the trade laws, particularly in the United States where there is no public interest exception, would limit their ability to do so.

The WTO challenge in 2010 against China’s green technology sector arose from a petition of a powerful trade union that had contributed significantly to President Obama’s 2008 election. It was the same trade union that had induced the President’s action a year earlier on low-cost tires. Whatever the President’s sincerity to collaborate with China in the development and accelerated deployment of low-carbon and renewable energy technologies, special interests and the trade laws had even more to say about the direction in which the President could go.

The two primary areas of new, green technology, apart from electric cars (which involve their own story discussed previously on this blog and to be revisited in a separate article following this one), are energy derived from wind and the sun. The United States complained to the WTO about China’s support of wind turbines; the U.S. Department of Commerce and the U.S. International Trade Commission now have taken on, one year after the WTO request for consultations on wind, China’s support for solar energy. China’s decision to impose duties on U.S. cars fairly completes the collaboration celebrated in the 2009 summit. Rather than collaborate to protect the planet against climate change, the United States and China are in a trade war over government support for the very public interest objectives they mutually endorsed.

Subsidizing Solar Power

Nothing illustrates President Obama’s coherent plan, China’s long-term plans, and the difficulty for the United States to collaborate with China on saving the planet, more than solar cells and solar power plants. The President understood the mass production of affordable solar cells would mean the development and expansion of a new industry, creating potentially thousands of new jobs, exactly as envisioned by the White House in November 2009. The product would replace carbon consumption with clean energy free of carbon emissions, reducing dependence on foreign oil and on coal. Inasmuch as almost every country would like to be free of dependence on oil and coal -- because of their direct costs, foreign policy implications, and environmental and health impact -- solar cells (like wind turbines) would be attractive to almost every human being, especially if they were produced at an affordable price. Harnessing the natural and renewable energy of sun and wind seemed far more sensible than the consumption of non-renewable natural resources, ultimately, and if for no other reason, because oil (and gas) and coal are potentially finite; the energy of the sun and wind are infinite.

Although a policy of subsidizing green technologies began with President George W. Bush, it accelerated and enlarged under Obama because of conviction, ideology, and the recession. Obama wanted to prove he was not beholden to big energy interests in the oil, gas and coal industries. He believed in the superiority of clean energy. And he believed a commitment to clean energy could help pull the economy out of recession – reducing fuel costs, lowering the trade deficit by reducing dependence on foreign resources, creating jobs to produce a domestic energy alternative and to export a universally desirable product.

There are many ways for governments to encourage industries. In the United States, the preferred way historically has been through the tax code. Companies can defer taxes, or take research and development credits, or enjoy particularized amortization, or receive many other special benefits, especially depending on the level of government. Local governments can defer or forgive property taxes, for example; state governments can exempt companies from sales or excise taxes, and can order public utilities to buy power from renewable sources on long-term contracts that benefit the energy producers more than consumers, who may pay a premium for the privilege of using green energy. The only apparent limitation on the ways in which companies can benefit from tax breaks and other subsidies is the imagination of the companies and their tax lawyers.

Solar energy, and solar cells in particular, have become the poster children for creative subsidies, not only in the tax code and regulations. The New York Times has offered the example of NRG Energy in California, which the Times estimates has received a “banquet of government subsidies valued at more than $5.5 billion,” beginning with below market construction loans and loan guarantees and including cash grants from the Treasury Department. California provides a perpetual property tax holiday, while mandating public utilities to buy a substantial portion of their energy from solar suppliers, usually at a premium passed on to ratepayers. Accelerated tax depreciation then completes the corporate savings.

The banquet is not limited to American companies, but is restricted to projects in the United States. The Times reports on Brookfield Asset Management, a Canadian investment firm, collecting enough in subsidies for a New Hampshire wind farm to cover between 46 and 80 percent of its entire cost in a $229 million project.

The backdrop for this bonanza for renewable energy producers is Solyndra, erstwhile manufacturer of the kinds of solar cells destined to populate “solar cities,” vast areas of solar power generation. Solyndra was trying to develop new and better solar cells that do not rely on the polysilicon whose export from China has been controlled by the Chinese government. Solyndra is the celebrated start-up on which the Obama Administration lost $528 million in loan guarantees when the company went bankrupt, proving that loan guarantees can be meaningful subsidies by transferring risk from the private sector to the government, and proving that governments, too, can lose bets.

The Solar Cells Case

When U.S. solar manufacturers could not agree to petition for tariffs against Chinese imports, a breakaway group of eight formed a new coalition, led by a German subsidiary, filing on October 19, 2011 what may be, according to World Trade Online, “the largest trade remedy petition ever brought against China and the first on a renewable energy product.” The coalition, led by the German-owned SolarWorld Industries (the other companies have refused to disclose their identities), alleged both dumping and illegal subsidies, notwithstanding that the U.S. Court of International Trade (“CIT”) has ruled that the two cannot be brought together against China as long as the United States treats China as a non-market economy (“NME”), and the U.S. Court of Appeals for the Federal Circuit (“CAFC”) has upheld the CIT and gone further, ruling that countervailing duty cases against NME countries are forbidden altogether. Tianjin United Tire & Rubber v. United States, December 19, 2011. The methodology of NME status, the CIT ruled, guarantees double-counting unfair trade; the CAFC has added that the governing statute forbids applying the countervailing duty law to NME countries because it incorporates earlier judicial rulings, particularly in the case of Georgetown Steel Corp. v. United States. And, at the heart of the countervailing duty (subsidy) allegations in the petition against solar cells is a complaint about Chinese currency valuation, a subject the Department of Commerce has refused repeatedly to consider in petitions against Chinese imports. The countervailing duty complaint, pursuant to the CAFC decision, must now be abandoned, and with it the complaint about currency valuation.

For duties to be imposed once dumping is found, the trade law requires only that “an industry” in the United States be materially injured or threatened with material injury by reason of the dumped or subsidized imports. In this case, there is more than one industry impacted by Chinese imports. One could not reasonably doubt that the wave of Chinese imports since 2007 has been inundating the U.S. market and driving down the price for U.S.-manufactured solar cells (and solar cells from other countries; it is not merely coincidental that the leading petitioner is the wholly owned subsidiary of a German company that also exports to the United States and is challenged by Chinese imports). But even as the Chinese imports are competing successfully with the domestic product (as demonstrated by the increasing market share), the Chinese competition probably does not impact net jobs negatively because the manufacture of solar cells does not generate as many jobs as their installation. SolarWorld, the largest producer in the United States and the leader of the petitioning coalition, has boasted that labor is less than 10 percent of its costs. As Matthew Wald has reported in The New York Times, because solar cells are made substantially by robots, and there are no moving parts to service once they are up and running, they “may be an odd choice for job creation.”

The more solar cells are available, and the more their price falls, the more the installing industry generates jobs. Conversely, were the price of solar cells to stay high (as the petition seeks), fewer would be sold and there would be fewer jobs for installing them.

The different impact on different industries is substantial. Wald discloses a 2011 report from the Solar Foundation, which advocates for solar manufacturers, that there are only about 24,000 jobs in solar manufacturing in the United States. By contrast, there are 52,500 jobs in installation, up 6.8 percent since 2010. The implication, although not thoroughly examined by anyone to date, is that Chinese imports may be hurting domestic manufacturers (and employment in that industry may be declining), but they are increasing jobs for installers while lowering energy costs with renewable energy. Until this surge in Chinese imports of solar cells, renewable energy came at a premium, with customers paying extra to receive electricity from wind or solar sources instead of coal, oil, or gas.

Because there is no public interest exception in U.S. trade law, there is no way for the agencies or courts to consider the competing interests of related industries. The U.S. manufacturers want the price of solar cells to go back up. They prefer unit profits to bulk sales. The companies that install solar cells, however, want the price to continue down. It is less important who sells them solar cells, although they are concerned about quality. More important is a price so attractive that energy produced from the sun is competitive with hydrocarbons. The price stimulated by the surge of Chinese imports has been creating that direct competition.

Of course, more jobs for solar installers potentially mean fewer jobs for oil, gas, and coal workers, because as more energy is generated with renewable energy, the less may be required from traditional natural resources. Notwithstanding an overall global growth in demand for energy, in the United States the competition seems to support one industry at the expense of others.

Solar wattage has grown more than 70 percent/annum in the United States since 2008. China’s share of that market has grown from close to nothing in 2006 to 50 percent in 2011. In 2008, the average price of solar panels was $3.30/solar watt of capacity. When the U.S. manufacturers filed their petition, the price had fallen to $1.00-1.20. It has been good for consumers, and good for a related industry. Inevitably it is not so good for domestic solar cell manufacturers, some of whom have been moving, themselves, to manufacture in China, while China’s largest producer, SunTech, has put up a factory in Arizona to assemble parts coming from China.

The very nature of the solar cell industry makes it a poor candidate for job creation, and the Chinese competition has limited its promise for exports. Of course, the U.S. industry could try to imitate the Chinese industry, committing to huge volumes at low prices. But, the U.S. industry has preferred innovation, which seems to carry more risk. Solyndra was innovating, and it failed. Nonetheless, China, too, has problems, apparently over-producing for a consumer market that, despite rapid adoption and conversion, still cannot keep demand up to the supply.

The Hypocrisy Of The Trade Law And Its Application

President Obama could not have been clearer in defining the public interest: convert from carbon-intensive to green energy production. The public policy would combat climate change, clean up the environment, improve public health, welcome innovation, create new jobs, increase exports and improve trade balances. Collaborating with China would be important because the United States, without China, could not reverse the direction of climate change, and with China the potential market ought to accommodate the full productive capacity of both. The United States could continue to be a center of innovation; Chinese adoption of American innovation could mean a continuing and ever-expanding market for American ideas.

China proceeded more quickly and effectively than industries in the United States. There is little to separate them in terms of subsidies. The United States has been pouring money into solar development and has taken over most if not all the risk from the private sector. President Obama complained, on October 6, 2011, “the Chinese government will say, ‘We’re going to help you get started, we’ll help you scale up, we’ll give you low-interest loans or no-interest loans, we will give siting, we will do whatever it takes for you to get started here.’” Yet, most of what he said the Chinese government would say to solar start-ups the United States has been saying, too. And when he added, on November 2, that there are “questionable competitive practices coming out of China” in clean energy, he might have heard a similar complaint in the United States from the oil, gas, and coal industries. Their difficulty in complaining, however, arises from the special place they have enjoyed in the tax code for many decades.

In cases such as solar cells, the trade law works directly against the public interest. The public interest must be for more, affordable solar power, not less. Yet, the trade law requires that a petition from an industry demonstrating material injury or threat of injury to that industry from dumped foreign imports must lead to dumping duties, raising the price of the imports or even excluding them from the U.S. market. The U.S. government cannot prefer its notion of the public interest to the automatic commands embedded in the trade law obligations to respect the elements of a properly executed petition presented by private parties. Nor can it weigh the interests of another industry against the determination of the petitioner. Indeed, it is the absence of a public interest provision in the trade law that prevents the government from having a trade policy.

In the solar cells case, as in the low-cost tire safeguard a year ago, the public interest is determined by narrow private interests empowered even to produce a trade war. The United States Department of Commerce and the International Trade Commission must now, by law, check off a list of criteria leading to tariffs on Chinese imports that are more likely to cost American jobs installing solar power, increase prices for consumers of clean energy, and consign millions of people to continuing exposure to degraded and polluted air, all to assist an industry that may not have a significant manufacturing future and, if it did, would not likely create many jobs.

Rhetorically, China reacted angrily and quickly on news of the petition and the initiation of investigations. Practically, China announced the imposition of dumping and countervailing duties on U.S. cars, which the Financial Times promptly characterized as “retaliatory.” Mercedes, BMW, GM, Ford, Chrysler and Honda were all hit for cars manufactured in the United States and exported to China.

The complaining solar cells industry is a beneficiary of extraordinary, possibly unprecedented public largesse. Now it has turned to the trade law for still more help, and has forced the Obama Administration to question the Chinese effort to accelerate the deployment of clean energy, the very policy to which China and the United States agreed just two years ago. The United States has gone to the WTO to stop the Chinese from doing almost exactly what the United States and China agreed both should do, and is now also trying to stop China from fulfilling its promise within U.S. law. The trade law thus champions narrow private interests and forces the Administration to contradict what it had defined as the public interest, both at home and in its foreign commercial policy.

U.S. Appellate Court Rules That Commerce May Not Apply The Countervailing Duty Law To Non-Market Economies

John J. Burke — Wed, 28 Dec 2011 15:05:17 -0600

This blog reported on August 30, 2009 that Chief Judge Jane Restani of the U.S. Court of International Trade (“CIT”) ordered the U.S. Department of Commerce (“Commerce”) to revoke the countervailing duty ("CVD") order on pneumatic off-the-road tires from the People’s Republic of China in a case titled GPX International Tire Corporation v. United States. Her reasoning was that Commerce was unable to eliminate the double-counting inherent in imposing CVDs while at the same time imposing antidumping duties calculated by using Commerce's non-market economy ("NME") methodology. Commerce appealed the CIT’s decision to the U.S. Court of Appeals for the Federal Circuit (“Federal Circuit”). On December 19, 2011, the Federal Circuit upheld the CIT’s decision but for different reasons than those offered by Chief Judge Restani.

The Federal Circuit held that the U.S. CVD statute prohibits applying countervailing duties to NMEs. It found:

that when amending and reenacting [the] countervailing duty law in 1988 and 1994, Congress legislatively ratified earlier consistent administrative and judicial interpretations that government payments cannot be characterized as “subsidies” in a non-market economy context, and thus that countervailing duty law does not apply to [non-market economy] countries.

This finding, as a matter of U.S. law, definitively prohibits Commerce from applying CVDs even in cases without a companion antidumping investigation where there is no risk of double-counting. It has much broader impact than the CIT decision that Commerce appealed because the CIT would have permitted CVD investigations and orders, denying only CVD investigations and orders simulaneous and on the same goods as antidumping orders. It also has much broader impact than the WTO ruling in China’s favor on the application of countervailing duties in non-market economy cases, as reported on this blog on April 25, 2011, because the WTO challenge was based exclusively on the issue of double-counting.

Commerce determined that the CVD law could not apply to NMEs in a 1983 steel case against Czechoslovakia. The petitioners appealed. The Federal Circuit agreed with Commerce and established the rule that CVD petitions could not be filed against NMEs in Georgetown Steel Corp. v. United States.

In GPX Tire Corporation, the Federal Circuit reviewed the legislative history and concluded that Congress was well aware that Commerce and the courts were interpreting the CVD law as being inapplicable to NMEs when Congress amended the CVD law in 1984, 1988 and again in 1994. The Federal Circuit held that congressional awareness of this interpretation, when it amended the statute, constitutes legislative ratification of that interpretation. The court reasoned that in the face of this legislative ratification of Commerce’s previous determination that the CVD laws do not apply to NMEs, Commerce is no longer free to change its mind. The Federal Circuit concluded that:

Although Commerce has wide discretion in administering countervailing duty and antidumping law, it cannot exercise this discretion contrary to congressional intent. We affirm the holding of the Trade Court that countervailing duties cannot be applied to goods from [non-market economy] countries. As we concluded in Georgetown Steel, if Commerce believes that the law should be changed, the appropriate approach is to seek legislative change.

Commerce must now wish it had never appealed Judge Restani’s decision. Under the U.S. judicial system, Judge Restani’s decision only bound Commerce in the specific case that she had decided. Commerce was free to continue to apply countervailing duties in other NME cases because the CIT does not set precedent and its decsions only govern specific cases. By contrast, the Federal Circuit’s decision is precedent that binds the lower courts and Commerce not only in the specific case before the court, but in all future cases.

Judge Restani’s decision was based on the double-counting problem and had left Commerce free to use the CVD law in any cases in which there was not a companion antidumping case. It also had left open the possibility that Commerce, in a future case, might find a solution to the double-counting problem and impose both antidumping and countervailing duties on the same product. Because the Federal Circuit’s decision is based on its finding that the U.S. statute prohibits applying countervailing duties to NMEs, it will take an act of Congress before Commerce can again impose countervailing duties on a non-market economy.

China Challenges US Continuation Of Practice Inflating Dumping Margins Through Zeroing Almost A Decade After The WTO Struck That Practice Down

John J. Burke — Wed, 30 Nov 2011 20:40:11 -0600

China requested a WTO panel on October 13, 2011 challenging the U.S. practice of zeroing in the 2004 antidumping investigation involving warm water shrimp and the 2006 antidumping investigation of diamond saw blades. This challenge to the U.S. Department of Commerce’s (“Commerce”) practice of zeroing to inflate dumping margins is the 10th such challenge since the WTO Appellate Body first condemned the practice in 2004.

The United States apparently recognizes that China likely will succeed in its challenge. The two countries agreed to procedures to accelerate the panel process in which the United States agreed not to contest China's claim that the measures identified in the Panel Request are inconsistent with Article 2.4.2 of the Anti-Dumping Agreement, on the grounds stated in United States - Final Dumping Determination on Softwood Lumber from Canada.

Commerce computes a company’s dumping margin in an original investigation by calculating a weighted average U.S. price and Normal Value for each model of the investigated product, then comparing the two to create model specific dumping margins. Commerce subsequently weight-averages all of those product-specific margins to calculate a single dumping margin for the company. However, before performing this last calculation, Commerce resets all “negative” margins (i.e., cases in which the U.S. Price was higher than the Normal Value) to zero. This practice of “zeroing” results in higher dumping margins than would occur had Commerce calculated a true weighted-average. In some cases, it results in a dumping order being imposed on a company when overall that company was not dumping and no dumping margin otherwise could have been found.

The WTO Appellate Body repeatedly and consistently has condemned the U.S. practice of zeroing beginning in 2004 with cases brought by the European Union involving 15 anti-dumping investigations and Canada involving softwood lumber. In those cases, the United States came into compliance for the specific investigation by making a new determination without the use of zeroing. However, until 2006 the United States refused to change its practices for subsequent and future investigations and systematically limited the application even in the immediate cases (limiting them to investigations instead of administrative reviews, for example). Thus, the United States continued to zero and the affected countries were required to bring a fresh WTO challenge in each case and even in each phase of each case. Worse, unless the amended final determination resulted in a finding of “no dumping” (as opposed to a lower dumping margin), Commerce would use zeroing to calculate the actual dumping duties to be imposed in subsequent administrative reviews. (Under the U.S. retrospective assessment system, the original investigation only sets a rate for cash deposits of estimated duties; the amount of actual duties collected is determined after importation in separate annual administrative reviews.)

In December 2006 Commerce changed its practice for new antidumping investigations initiated after that date and no longer zeros in original investigations. However, it did not go back to undo zeroing in investigations initiated prior to that date. Thus, China had to bring another WTO challenge for warm water shrimp and diamond saw blades notwithstanding nearly a decade of rulings. Moreover, Commerce continued to zero in subsequent administrative reviews, notwithstanding several WTO Appellate Body rulings that zeroing in administrative reviews is no more consistent with WTO obligations than zeroing in original investigations. Thus, even after China succeeds in its WTO challenge in these two cases, eliminating zeroing would help the companies involved only if the elimination of zeroing were to result in a finding of “no dumping” and a revocation of the antidumping order for that company. Were the new calculation to result only in a lower dumping margin, the order would be continued and the actual duty assessment would be determined in the administrative reviews in which Commerce could continue to zero. Surprisingly and without explanation, although China included subsequent administrative reviews and the recent sunset review in its request for WTO consultations with the United States earlier this year, it did not include those reviews in its request for a WTO dispute resolution panel.

China and the United States agreed to expedited procedures in which the panel would issue its decision within three months of its composition and the United States would bring itself into compliance within eight months of the Dispute Settlement Body adopting the panel’s report. As compliance in this case merely requires a recalculation, the eight months to comply is consistent with an American pattern to take as long as possible to comply with WTO decisions whose effects are strictly prospective.

U.S., China Clash Over Internet Great Wall 中美决战互联网长城

Jing Zhu — Mon, 31 Oct 2011 08:50:53 -0600

U.S. Trade Representative Ron Kirk announced, on October 20th, 2011, that the United States, pursuant to World Trade Organization (“WTO”) rules, is requesting China to provide more information on its Internet restrictions. More than a week passed with Chinese media and the public paying the request little attention.

It is not surprising that China is giving this sensitive request the silent treatment. Although Kirk claimed that the WTO request relates “specifically to commercial and trade impact of the Internet disruptions,” China is likely to perceive it from a geopolitical point of view. Public communications, or propaganda, is one of the three pillars of the ruling Chinese Communist Party. Moreover, the timing of this request, whether deliberate or coincidental, is less than ideal – submitted in the wake of the Arab Spring, in which the mass public was mobilized by social media via Internet and mobile phones. Most importantly, China has little if anything to lose in extending this process, even if it could lead to a WTO dispute settlement proceeding.

Why China?

According to Google’s White Paper – Enabling Trade in the Era of Information Technologies: Breaking Down Barriers to the Free Flow of Information, more than 40 governments engage in broad-scale restriction of online information. Yet, the Office of U.S. Trade Representative (“USTR”) singled out Chinese Internet restrictions for a WTO request.

Internet based services companies, such as Apple, Facebook and Google, are playing a central role in the U.S. economy and probably in the submission of this request. Apple reported $6.62 billion in third-quarter profits, slightly below quarterly earnings expectations for the first time in years. Google’s third quarterly earnings soared to $9.72 billion and rebounded to its highest growth rate since before the 2008 financial crisis. It also added more than 2,500 jobs in the same period.

Expanding overseas is crucial to these companies’ growth. For instance, more than half of Google searches come from outside the United States, and revenues from abroad totaled $5.3 billion, representing 55 percent of its total revenues in the third quarter of 2011.

China is the largest market in terms of Internet population. The number of China’s Internet users has exceeded 500 million, according to the Economist Intelligence Unit’s data, which is larger than the total population of the European Union, and roughly twice the size of the U.S. market. More importantly, the Chinese number has been growing at double-digit rates since 2008, far exceeding the 2.5 percent to 4.5 percent U.S. growth rate.

No other market will be able to reach the size of the Chinese market any time soon. For instance, the second most populous country, India, has only 83 million Internet users, less than one third of the U.S. size. The growth rate of India’s Internet population is lagging behind the Chinese as well.

U.S. companies face challenges from Chinese Internet entrepreneurs in the Chinese market. A Silicon Valley venture capital investor – Dave McClure – recently praised his Chinese hosts as “most likely smarter and more aggressive” than their U.S. competitors. He probably went too far because the best-known Chinese Internet companies are copies of the leading U.S. high-tech companies. RenRen, which was modeled after Facebook, went public this year and is now valued at $2.25 billion as reported by the Financial Times’ Kathrin Hille. But McClure responded that, due to the vast size of the Chinese market, “it would be foolish not to copy” an idea that works.

China’s Internet Great Wall

USTR stated that the WTO request focuses solely on “commercial and trade impact of the Internet disruptions,” but it also pointed out that “the United States believes that economic and social development of the Internet globally is best served by policies that encourage the free flow of information and prioritize individual empowerment and responsibility” in its letter to the Chinese Ambassador to the WTO. Thus, the United States is aware that it is pressing China on one of its most sensitive policy issues.

Richard McGregor, Washington Bureau Chief and former Beijing Bureau Chief of the Financial Times, and author of the widely acclaimed book The Party: The Secret World of China's Communist Rulers, has written, “[t]he party is like God. He is everywhere [in China]. You just cannot see him.” He pointed out, at a Washington, DC seminar last July, that the Chinese Communist Party actively utilizes “3Ps” – personnel (the Central Organization Department, the world’s most powerful human resources outfit), propaganda, and PLA (the People’s Liberation Army) to maintain its power. The Party has fully realized the importance of the Internet in the digital era. Not surprisingly, outsiders have complained that “China has devoted extensive resources to building one of the largest and most sophisticated filtering systems in the world.”

The United States has been actively advocating human rights abroad and sees Internet freedom as an extension of traditional human rights contained in the universal declaration of human rights: free speech, free assembly, free association and freedom of the press. Secretary of State Hilary Clinton last year stepped in when Google clashed with the Chinese government over its Internet restrictions. After Google briefed the State Department, Secretary Clinton issued a statement: “[w]e look to the Chinese government for an explanation.” Despite USTR’s reference to commerce and trade, U.S. policy on human rights is bound up with the Internet.

As propaganda plays such an important role in China, Chinese policy makers most likely would perceive the Google incident and the USTR request as events in a series of plots against China orchestrated by the U.S. government. China looks warily upon the destabilizing implications of the Arab Spring for authoritarian governments. In both China and the United States these revolutions are thought to have been fueled by Google and Facebook. It would be foolish to think that the Chinese government perceives the WTO request related only to the commercial and trade impacts of its Internet policies.

What’s Next?

USTR submitted its informational request under paragraph 4 of Article III of the General Agreement on Trade in Services (“GATS”): “Each Member shall respond promptly to all requests by any other Member for specific information on any of its measures of general application or international agreements within the meaning of paragraph 1.” According to the BNA International Trade Daily, this request could lead to a formal consultation request, which is the first step toward a WTO Dispute Settlement Body (“DSB”) proceeding. Paragraph 1 of GATS Article XXIII says: “If any Member should consider that any other Member fails to carry out its obligations or specific commitments under this Agreement, it may with a view to reaching a mutually satisfactory resolution of the matter have recourse to the DSU.”

China has little if anything to lose if it were not to respond to the U.S. request promptly. As we pointed out in previous blog articles, both the United States and China tend to exaggerate the significance of WTO DSB proceedings, and the United States treats every WTO defeat as sui generis, applicable to the immediate case and no others. Consequently, although the DSB Appellate Body issued a panel report favoring the United States in the case of market access to foreign audiovisual products (WTO DS363), China stalled for four years before taking action that would satisfy the United States. There is nothing to stop China from doing the same thing again were the United States to prevail, eventually, in an Internet case.

WTO DSB proceedings are notoriously prolonged. For instance, in Brazil’s challenge of U.S. upland cotton subsidies (WTO DS267), it took the two sides almost eight years to enter a framework for a mutually agreed solution. In the case of China, the United States spent four years trying to tackle China’s restrictions on market access of foreign audiovisual products. The United States submitted a consultation request in April 2007, and the WTO Appellate Body did not circulate its report until December 2009. In the following months, the United States “expressed concern over the lack of any apparent progress by China in bringing its measures into compliance” at DSB meetings. It was not until April 2011 that the two sides reported to the DSB their agreed procedures to implement the panel recommendations.

The United States-based Internet services companies are not likely to gain much while waiting four years for a favorable outcome, and they are not waiting. Instead, Silicon Valley venture capitalists are continuing frequent visits to China seeking investment opportunities. The WTO case may create political theater, but is not likely to achieve a legal resolution to a political problem.

China-U.S. Investment Forum 2011

Dr. Elliot J. Feldman — Mon, 10 Oct 2011 09:15:45 -0600

Editor’s Note: Dr. Elliot Feldman on October 5, 2011 presented the following speech at China-U.S. Investment Forum 2011.

Our firm has published a treatise, in English and Chinese, entitled Mergers & Acquisitions in the United States: A Practical Guide for Non-U.S. Buyers. I am one of the authors and the overall editor. My status as Senior Partner in the firm has made me a book peddler.

The treatise contains twenty chapters covering how to make a deal, how to paper it, how to arrange for the best tax situation, due diligence for labor, pensions, intellectual property and government contracts, dealing with national security issues and reviews, the Foreign Corrupt Practices Act, export controls, trade, customs, immigration, tax and bilateral investment treaties, Sarbanes-Oxley, antitrust, products liability – all focusing on issues arising from foreign ownership of corporations and subsidiaries in the United States. We have paid special attention to Chinese investors. One might say that this treatise has been written for you.

The overwhelming message of this conference is that your investments are welcome in the United States. People here, people you may engage to help you, want you to succeed. We all understand and recognize the importance of your mission for you and for us.

Good wishes and good will count a great deal in producing success, but business is business. It is competitive and it can be tough. As China has embraced capitalism it has come to understand competition. In every business dealing, your adversary is potentially your friend, and your friend is potentially an adversary. Because of this paradox, we memorialize just about everything in legal documents.

Perhaps more than in any other country, the American tradition has been to rely on legal systems to prevent, or alternatively, to resolve business disputes. An inability to appreciate this aspect of American culture can become a competitive disadvantage, even a liability.

For these reasons, I want to begin our discussion with three things the treatise does not say, at least not explicitly, and I want to present these points as questions:

First, welcome to the United States. Do you have a lawyer? In the United States, business is not conducted without lawyers. My partners, in writing the treatise, constantly wanted to say, “Don’t try this on your own,” or “You need a lawyer to understand the labor laws,” for example. I removed all of that language in editing because I thought it obvious that, in a book written about law by lawyers, once a corporate decision-maker understands generally the subject matter, he would know to get a lawyer. The decision-maker would know that there is a wide range of legal issues that may affect the success of an acquired investment – the point of the book—and he would ask informed questions of a lawyer so he could understand the impact of those issues on his particular investment. He then would make well-informed decisions and would know that it is most efficient for the lawyer, first, to provide counsel, and then to handle the details and documents necessary to execute decisions. My experience, however, at least with China, has been that these conclusions are not so obvious. So, I am telling you. You can’t enter complex transactions – you can’t make deals here – without a lawyer.

A recent issue of the China Business Law Journal makes this point. Entitled “Culture Clash,” the article notes, “Chinese businesspeople may still prefer to do deals on a handshake and a prayer, rather than to do their homework,“ and “our research suggests that foreign and even Hong Kong companies are more likely than their Chinese counterparts to engage advisers to tackle pre-merger due diligence. They are also more likely to seek external help with issues involving human resources, and other matters that can be the key to the success or failure of a merger or acquisition.” Your partners and your competitors for investment opportunities in the United States seek competitive advantages based in large part on the knowledge and advice they take from lawyers. You will miss opportunities for success if you are not equally well informed and advised.

Second question, in two parts: do you have a lawyer in China? Do you trust her? I ask these questions because there is an important cultural difference between China and the United States when it comes to lawyers. Here, lawyers owe a fiduciary duty to their clients. They take an oath to be loyal to their clients, and they take their oath seriously. It is not only a business matter. It is a matter of ethics. Lawyers here frequently tend to be trusted advisers and confidantes because information provided to the lawyers typically cannot be disclosed to the government, and because the more information the lawyer has, the more accurate, insightful and valuable is the advice that the lawyer can give. In China, in our experience, at least, lawyers are treated more like employees. They are used for technical purposes, not as trusted advisers. The relationship, and the expectations, are different here.

Third question: If you were to be dissatisfied with the legal services your lawyer might provide, would you expect to pay the lawyer’s bill? For lawyers, time is money, and when you use your lawyer’s time, even if you don’t like the result, you need to pay for it. Chinese companies unfortunately have acquired a reputation in the United States for not paying their legal bills, even when the agreed upon advice has been given. Perhaps because of the different relationships and expectations that I mentioned, Chinese companies do not seem to value legal advice as much, and agreements to pay for such advice are given less significance. There are exceptions of course, but it is the overall impression that may matter most. In the United States, engagement of counsel is a contract and bills must be paid. Over time, it will become more difficult for Chinese companies refusing to pay bills to find good counsel, which will become a critical problem for companies seeking valuable advice to keep pace with their competitors.

These are candid, perhaps even tough, opening remarks, especially on a panel of lawyers. But, as you can see, I have been around for awhile, and I am devoted to the proposition that China and the United States must understand each other, learn from each other, and work closely together for the prosperity of the whole world.

Too often, now, I have seen contracts major Chinese corporations have entered with Americans in which the Chinese either engaged inadequate counsel, or no counsel, or did not trust their counsel enough to achieve agreements favorable for their objectives. Such failures lead to resentments, misgivings, and missed opportunities for Chinese corporations to succeed. They are not necessary. So, as you consider investing in the United States, get a lawyer, preferably a legal team of many specialties, and trust them.

I urge you to think strategically about your investments, and for the long term. Even as the United States population is only about 25 percent the size of yours, we continue to be the world’s greatest consumers. Until recently, you have been making things we have been buying, but enormous pressure has built up that Americans need to be making more of the things that Americans are buying. In capitalism, profits still go to the owners of the means of production. There is no reason why Chinese cannot be the owners of some of the means of production in the United States, making things for Americans to consume, and to sell to other parts of the world.

The first wave of Chinese foreign investment has concentrated on the natural resources of other countries, buying and shipping them back to China. China must now embark more seriously on a second wave, not in a race to control the resources of others, but to invest in the long term for everyone’s prosperity. The opportunities for such investment and engagement are without limit.

You must start your quest by determining what it is you want to buy, and how it will fit with who you already are and what you or your company want to be. Americans – lawyers, investment bankers, consultants – can all help you identify specific targets of acquisition or merger, but only when you are able to articulate what you want, why you want it, the form you want it in, and what you can afford to pay for it.

Most of those first considerations are internal to your companies, but if you want a lawyer to understand fully what you are trying to do, you should include a lawyer in the discussions from the beginning. In negotiating the deal and packaging it with proper and legally complete documents, lawyers are not merely draftsmen decorating your thoughts with the right phrases. They are craftsmen making sure your interests are protected under the law. You cannot negotiate agreements and sign documents without lawyers who appreciate fully what you are trying to do.

There is a lot to do before getting to a handshake. We have encountered Chinese companies that understand taxes to be an important part of a deal, but few who have appreciated that the domicile of an enterprise and its structure (whether wholly foreign-owned or a subsidiary or sheltered through an offshore holding company, or a number of other possibilities) can determine whether the deal will be profitable or will lose money and fail. Taxes should not decide whether to make a deal, but certainly must be part of the consideration as to where and how to make it.

In deal-making a favorite phrase is “due diligence.” Conventionally, it refers to examining the financial books of a company – assets in buildings and equipment, liabilities in loans and accounts due, inventory on hand and in the pipeline. Traditional Mergers & Acquisitions lawyers concentrate on these considerations. In our treatise, we think of due diligence a little differently. A great attraction to investing in the United States is the presence of a highly educated and skilled work force. However, the work force can also be a serious liability. You need to know, before entering a deal, whether the labor force is unionized, whether there are health and pension plans that must be honored. There is a law in the United States – the WARN Act -- that prevents you from taking over a company and firing all the workers. Due diligence requires knowing all about the work force and its contractual and legal entitlements.

As the United States has become a service-based economy, the value and importance of intellectual property has become so important that it often exceeds, by far, the value of factories and inventory. In our view, potentially the greatest value in a deal will be found in intellectual property. However, intellectual property can also be contested. Before you invest, you need a complete inventory of the intellectual property. You need to know who owns it, whether and how it will convey in a merger or acquisition, and whether it is subject to pending or potential patent or trademark or trade secret lawsuits. Losing such lawsuits can destroy the value of a company.

Foreign ownership can mean the termination of contracts with the U.S. government. You need to know whether the company in which you are considering investment does business with the government, how dependent it is on that business, and whether the kind of business it is doing will be impacted by your financial intervention. A thorough examination of government contracts is also part of the due diligence process.

China is not unfamiliar with proposed projects implicating national security in the United States. There is a myth in China, however, that these projects always and must turn out badly. In fact, they can and usually do succeed, but there must be proper preparation, not only as to the legal process known as “CFIUS,” but the political process that lines up popular support. My partner Mike Oxley dealt with these issues intensively in Congress, and has written a chapter for our treatise all about them.

There is much more, of course, but I have no more time. I urge you to leap the first hurdle and get lawyers you trust and will engage from the very first steps in your journey. Then, start the journey with a detailed check list of what you need to know in order to make a deal. Finally, be prepared to make the deal. Become an investor here. Share in the profits of operating in the most technologically and economically advanced place in the world.

SPIL Mumbai Calls For Papers On International Trade

John J. Burke — Thu, 22 Sep 2011 13:21:07 -0600

This blog occasionally posts articles regarding international trade issues with respect to India that are connected to China - US trade issues. In that spirit we wish to bring to our readers' attention a recent call for papers to be presented at the 3rd Government Law College International Law Summit, organized by the Students for the Promotion of International Law (SPIL), Mumbai, in association with the Indian Merchants Chambers. The Summit is scheduled to take place from the 3rd - 5th February, 2012. SPIL Mumbai is calling for papers across the full spectrum of the Summit's theme, which this year is International Trade Law and Economic Policy. In particular, they are looking for papers on international trade law, international investment law, international taxation, and competition law. Please click here for more information on this call for papers.

Times Change 风水轮流转

Dr. Elliot J. Feldman — Fri, 09 Sep 2011 12:54:12 -0600

A year ago, American sentiment toward China, at least as expressed by many Members of Congress, was decidedly negative. Pending legislation included denunciations of China’s subsidization of exports and currency manipulation. Some Members of Congress wanted to restrict all Chinese imports. The slow American economic recovery was blamed to a significant degree on China.

Now, with Americans more focused on domestic economic woes than on any other single concern, complaints about China have receded. Illegal immigrants in the United States seem more of a target than anyone outside the country, even though there is no evidence at all that they have contributed to unemployment or economic stagnation. Historically, Americans tend to blame foreigners for economic hardship and there is a spike in trade remedy actions against foreign products. Not this time. Neither China nor anyone else but Americans themselves (and perhaps the aliens within), especially congressional leaders, seem to be blamed.

Still, China remains an available target, or at least a convenient means for collateral attacks on other trade priorities. The Obama Administration recognizes three pending trade agreements, with Korea, Colombia, and Panama, as potential stimuli for an expansion of exports that would create jobs. After three years renegotiating them to satisfy moderate Democrats as well as trade unions, the Administration declared them ready for congressional passage many months ago. Republicans, claiming to be champions of free trade, zealously advocated for their immediate passage until the Administration was satisfied with them. Then, Republicans launched a political campaign to deny workers displaced by trade agreements the Trade Adjustment Assistance (“TAA”) that for many years had enjoyed bipartisan support because the Administration linked TAA to passage of the trade deals.

The Administration may have pacified Democrats with the renegotiations and persuaded them that the trade agreements would bolster the economy, but not enough to prevent the insinuation of China as a barrier to final congressional approval. House of Representatives Minority Leader Nancy Pelosi (D-Calif.) has demanded a House vote on a bill retaliating against alleged Chinese currency manipulation as a pre-condition for voting on the trade deals. Her gambit, moreover, seems to have some companion support on the other side of Capitol Hill, where a small group of Senators plans to introduce a similar bill to retaliate against alleged Chinese currency manipulation. No such bill currently is pending, and none was passed in the last year, but Senator Jay Rockefeller (D-W. Va.) is proposing one, focused as much on a complaint about the WTO’s Appellate Body as on China.

With a crowded legislative agenda, bills on Chinese currency not yet fully conceptualized are not likely ever to become law. The very threat of them, however, could impede other international trade. The attempted linkage to the trade agreements with Korea, Colombia, and Panama is typical of congressional legislative tactics, but also a desperate sabotage of the Administration by its own political party.

The Administration wants and needs the trade deals. Republicans have wanted these trade deals, but have not wanted President Obama to enjoy the satisfaction and potential electoral help from passing them. The President could not pass them relying on his own party. At the moment when he seemed to have struck an agreement with Republicans to pass both TAA and the three free trade agreements, some Democrats seem to be seeking ways to stop him. Their general weapon of choice appears to be China, which Obama has not wanted to antagonize, and more specifically the currency, which his economists generally have advised not to pursue more than diplomacy has been pursuing already.

China, then, is no longer the principal target in bills about currency manipulation. In the Senate, the more fundamental complaint is about the WTO, and in the House the intended target is trade liberalization. In neither case is China likely to be used effectively, but it surely must be to China’s dismay that it is being used in these debates at all.

Other pending legislation regarding China arises more in the context of national security or simple nationalism: a resolution that would ban Chinese manufacture of parts for the President’s helicopter fleet; a ban on technology transfer from NASA. There is more than one “sense of” resolution, which has no legal consequence. Meanwhile, the Administration is promising China more from its export control reform than it can or will deliver, but at least it is actively gesturing in a desired direction.

Unlike a year ago, the legislative spotlight illuminating grievances over the economy and trade is not on China. Indeed, what some call the “Manchurian Candidate” for President, former Ambassador to China Jon Huntsman, has suggested that the United States must look to itself before looking to China for explanations of economic difficulties. The current focus should not be misinterpreted: the bills about China are not about China.

There are many reasons why. The most important is domestic. The summer spectacle of eighty-seven congressional freshmen holding the country’s debt ceiling hostage concentrated minds at home. Imminent possible failure of European banks, and of whole countries, has shifted focus from east to west. Renewed Wall Street bonuses and continuing home foreclosures are reminders of domestic greed, not foreign malevolence. The national conversation is not about China.

There is also a powerful explanation in the deliberate foreign policy toward China of the Obama Administration. Much has been done to routinize U.S.-China diplomacy and reduce earlier tensions. Even as there have been few concrete accomplishments, there have been many calming meetings. The Strategic and Economic Dialogue convened successfully. A summit of Presidents in Washington in January helped Obama recover from his doubtful Asian outing last November, and squads of potential Chinese investors have been visiting the United States, nurturing hope that some of the massive foreign reserves accumulated by China may yet find their way back to the United States. Better in the form of investments than loans or purchased bonds. China, at least rhetorically, has recognized that it cannot continue to attract foreign investment without making some foreign investments of its own.

In November, while in Asia, Obama called for resumption of the Doha Round. His Administration now admits that this objective is not likely to be fulfilled. With its failure will be a failure to capitalize on the imagined global trading rewards that might have energized the world’s economy, and diminish even more the instruments thought to be available for economic recovery. In place of multilateralism, bilateralism is a modest but nonetheless significant alternative.

Successful partnership with China becomes more important with every multilateral setback. Diplomacy that routinizes the relationship, that removes it from a critical spotlight, inevitably makes the partnership more attractive to China. The trick, however, must be to avoid appearing weak, or desperate, to China. As much as the United States needs China, China needs the United States. As congressional complaint about China is not about China, friendship with China is not necessarily so much about China either. Both are about solving economic problems felt at home but driven by forces as foreign as domestic.

And so it is for China, too. China needs the United States as much for China as for the United States, for domestic as well as foreign purposes.

Changes in American politics about China from a year ago say more about the United States than about China or U.S.-China relations. It will be important for both countries to recognize and understand the impact of domestic politics on their relations, and on the needs they have for each other.

一年前，美国明显对华不太友好，至少这是许多国会议员的态度。他们提交议案，指责中国对出口品提供不正当补贴以及操纵汇率。一些国会议员提议限制中国产品出口至美国。美国经济复苏缓慢也被认为是中国的错。

当前，美国民众对国内经济发展的关注程度远远超过其他任何议题，对中国的抱怨声开始消退。虽然没有证据表明在美非法移民导致失业率居高不下或经济停滞，但他们却成为众矢之的，而境外目标开始退出美国公众视野。回顾历史，美国总爱把导致经济困难的责任推在外国人身上，针对外国产品的贸易补偿行动数不胜数。但这次却不同。中国及其他国家并未面临指责，但是美国人从自身查找原因，国会领导人首当其冲。

但是中国仍可能成为被攻击对象，至少很容易成为其它贸易目标的附带牺牲品。奥巴马政府将尚待国会批准的与韩国、哥伦比亚以及巴拿马签订的双边贸易协定视为促进出口、增加就业的良方。奥巴马政府用了三年时间与三国重新谈判，以满足温和派民主党人以及工会的要求，并于数月前宣布谈判完毕、只待国会批准。然而自称倡导自由贸易的共和党人却坚持要求奥巴马政府满足他们的条件后才能通过这三个自由贸易协定。随后，共和党人又发起运动抵制向因受自由贸易协定冲击的失业工人提供贸易调整补助——这一补助多年来受到两党支持，但仅仅因为奥巴马政府将贸易调整补助和通过自由贸易协定联系在一起，共和党人就转变了立场。

英文全文请点击这里

Europe Leaps Ahead Of United States In Bilateral Investment Treaty Negotiations With China 双边投资协定谈判，欧洲领先一步

Michael S. Snarr — Wed, 20 Jul 2011 14:12:39 -0600

中文请点击这里

The European Union has moved ahead of the United States in negotiating a bilateral investment treaty with China, as predicted previously here on Baker Hostetler’s China U.S. Trade Law blog. Chinese Commerce Minister Chen Deming and EU Trade Commissioner Karel De Gucht made the announcement on Thursday, July 14, 2011 in Beijing following the 25th meeting of the joint economic and trade commission between China and the European Union.

Both China and the European Union expressed concerns that likely will be key topics of the negotiations. As reported by Xinhua, Europe’s primary concerns are compulsory certification regulations, export credits, and exports of raw materials. For China, primary concerns are high tech trade, registration of herbal medicine, and Europe’s policies applying anti-subsidy, or countervailing duties, to China. These issues are unlikely to stand in the way of a treaty agreement, however, because China has demonstrated a significantly increased commitment to its economic relationship with Europe and is eager to continue attracting foreign investment.

Even before this month’s news about raising the United States’ debt ceiling, China appears to have been shifting its trade and investment focus away from the United States and toward Europe. Economists tracking China’s purchases of U.S. Treasury debt have observed an unexplained gap between the decrease of those purchases and an increase in China’s foreign exchange reserves. The Chinese government remains guarded about its foreign exchange holdings, but some economists believe the gap can be explained by a redirection of foreign investment to Europe.

The announcement of bilateral investment treaty negotiations also comes on the heels of Premier Wen Jiabao’s five-day tour of Hungary, Germany and England, which began on June 24. Trade between the EU and China has risen rapidly this year—twenty-one percent higher than last year, when bilateral trade totaled $480 billion (by comparison U.S.-China trade in 2010 totaled $457 billion). And China is reported to be the fastest rising destination for European exports.

Twelve agreements were signed between China and Hungary during the visit, and China has shown interest in purchasing Hungarian state bonds, as well as investing in the government-owned airline and rail companies. The China Development Bank reportedly has made a one billion euro credit available for joint business ventures with Hungary.

China and Britain reached trade agreements worth $2.2 billion and set goals for doubling trade between the two countries to $100 billion by 2015. British natural gas company, the BG Group, signed a $1.5 billion financing deal with Bank of China.

China and Germany signed agreements worth more than $15 billion, including purchases of aircraft and collaborative automobile investments. China already has a trade deficit with Germany, and German exports of high-technology goods continue to increase.

China also has given Europe repeated assurances that it would invest in European sovereign debt, including purchases of Greek government bonds, in order to continue to support Europe and the euro. EU Trade Commissioner De Gucht has maintained that China cannot be the solution for Europe’s debt crisis, but admits that the Chinese investment “certainly helps.”

Meanwhile, China is urging the United States to act responsibly and protect the interests of debtholders in deciding whether to raise the U.S. debt ceiling. Chinese ratings agencies have downgraded U.S. sovereign debt, which might be dismissed were it not for the fact that the three largest U.S. credit rating agencies lean ever more in that direction with the August 2 deadline fast approaching with no agreement in the U.S. Congress to raise the debt ceiling.

Europe has the attention of the Chinese for the moment. The United States will have to get its economic house in order, before it can start courting China again for an investment treaty. It also would not hurt for the United States to approve Free Trade Agreements with Colombia, Panama and South Korea, which have been in limbo since they first appeared to be concluded during the George W. Bush administration in 2006 and 2007, to show that a politically sensitive agreement like a U.S.-China investment treaty ultimately can get done. Perhaps the EU-China negotiations will lead to additional Chinese reforms that will help pave the way for a future U.S.-China treaty, but for now it would seem the United States has a lot of catching up to do.

中美贸易法博客先前撰文指出，欧盟对华双边投资协定谈判已经领先美国一步。2011年7月14日，中国商务部部长陈德明和欧盟贸易代表德•古赫特在结束第25届中欧经贸混委会会谈后宣布宣布这一结果。

中国和欧盟都分别对一些经贸议题深感忧虑，这些议题将成为会谈重点。据新华社报道，欧盟最关注的议题是：许可证规定、出口信贷及原材料出口。中国主要关注：高科技贸易、中药产品注册以及欧盟是否对中国采取反补贴调查。但是这些议题不太可能阻碍双边协定谈判，因为中国已经表现出她对中欧经贸关系的重视、并希望继续吸引外资。

本月种种有关提高美国负债限额的新闻发布之前，中国已经表现出将贸易和投资重点从美国转移至欧洲的政策倾斜。追踪研究中国购买美国国债的经济学家发现，中国的购买增速正在减弱，而中国的外汇储备却不断增加，这一差距颇令人费解。中国对外汇储备仍异常重视，但是一些经济学家认为导致这一差距的原因是中国将对外投资逐步转移至欧洲。

英文全文请点击这里。

As Fragile As A China Doll 脆弱的中国娃娃

Dr. Elliot J. Feldman — Thu, 23 Jun 2011 10:00:00 -0600

中文请点击这里

China As An Echo Of Japan

Many Americans worry today about China much the way they worried about Japan over a quarter century ago. Then, Harvard scholar Ezra Vogel’s Japan As Number One: Lessons for America, extolled the virtues of a controlled economy in a tightly-wound bureaucracy. Vogel exhorted Americans to copy Japan, whose students recorded higher scores on standardized tests, whose companies exported the larger part of their production with ever better quality, whose economy seemed to be growing exponentially as the economy in the United States was suffering stagflation.

Japan loved Vogel’s message. The Japanese translation of his book is still the best-selling non-fiction work in Japanese history. Yet, of course, he was wrong.

Japan’s controlled economy and centralized Ministry of International Trade and Industry triggered much of the philosophy and design behind changes in the countervailing duty laws to account for predatory targeting of foreign markets. The trade remedy tools for antidumping did not seem adequate to take on the wealth and power of the Japanese government. American concerns had focused on semiconductors and steel, but there were many other products ranging from portable typewriters to the most sophisticated computers. The slogan was that American companies could compete with any foreign private enterprise, but not with foreign governments. The perceived solution was to concentrate on challenging Japanese subsidies that were intended to put foreign (American) competition out of business.

Ironically, American producers rarely took advantage of these new tools under the countervailing duty laws to address concerns about imports from Japan. Instead, they continued to rely almost exclusively on the antidumping law, using these countervailing duty tools, originally created with Japan in mind, against other countries, most recently China. The sloganeering, however, remains the same – that it is one thing to compete with foreign private enterprise, and quite another to compete with a foreign government.

Japan was determined to move up the production value chain, from the manufacture and export of cheap knick-knacks to the premier rungs of automobiles and electronics. Generally, Japan succeeded under state direction, but the move up led to offshoring jobs for assembling and finishing sophisticated goods, and to the loss of jobs related to lower-cost production in textiles, transistor radios, and other items that had contributed to the reputation of “Made in Japan.”

There were many congressional calls in the United States for tough enforcement of the trade laws in order to guarantee a “level playing field” for American manufacturers. It was not the retaliatory trade laws, however, that slowed the Japanese engine. Instead, it was the stultifying bureaucracy, the government’s replacement of the market to pick winners and losers, the dominance of imitation over innovation favored by the students with high standardized test scores. It was the cost associated with graduating from cheap to more expensive and sophisticated goods. The robust economy turned stagnant, and lost years became lost decades. No one today in the United States would want to have been emulating Japan, even before the devastation of the 2011 earthquake and tsunami.

There are echoes from Japan in today’s global response to China, whose astonishing growth and achievement during the very period when Japan’s economy was failing has challenged some American beliefs in the free private enterprise system. China’s major producers are state-owned enterprises; the economy is subject to central control and management. China has proved Milton Friedman as wrong as Vogel: democracy is not a sine qua non for successful capitalism. An authoritarian state with a centralized economy can, at least under some circumstances and for some period of time, prosper.

Some, including many Chinese, argue that Americans should be learning from China how to recover from recession and manage an economy. Many Chinese are as enamored of the image of a surging China as the Japanese had been with the Vogel version of Japan. Two years of aggressive foreign policy at the end of the last decade meant, at least in part, to suggest to the United States that China had plenty of muscle of its own, a new self-confidence and independence.

Japan Not Then And China Not Now

Exponential extrapolation has always been seductive to social scientists. Uri Dadush and William Shaw, in Juggernaut: How Emerging Markets Are Reshaping Globalization, project annual 5 percent growth for China for the next forty years, neglecting the exercise of looking back forty years to ask whether anything predicted then would make sense now. China in 1970, in a Cultural Revolution banishing intellectuals and celebrating peasants, becoming the world’s leading exporter of manufactured goods, with more than 300 million people lifted out of poverty and expanding cities? The Soviet Union, instead of the great nuclear rival and threat to western capitalism, going out of business altogether? The type of predictions in Juggernaut rightly scare Americans. Some, who think they must compete with the juggernaut, consider imitation more than flattery.

Americans should no more consider imitating China today than they should have been learning many lessons from Japan in the 1970s and 1980s. It does not diminish the Chinese accomplishment to conclude that it should not be emulated, and that it will not last, in this form and this way, forever (nor even forty years). Japan’s great growth and achievement was a sustained progression from the devastation of World War II. It took around thirty years. China’s growth follows the Cultural Revolution. Once launched by Deng Xiao Ping it, too, took around thirty years.

This assessment does not mean that China has run its course, but it does mean that there is much that should (and does) worry China. There is much that is not right in the economy, and many warning signs immediately ahead.

Fragile China

There has been much commentary about China’s fears of instability. The Government reports tens of thousands of protests around the country every year, many violent and involving masses of people. Such protests seem surprising in an authoritarian state with a growing middle class and manifest materialism. From the outside looking in, the Chinese government is in control and the state is not legitimately threatened. The Chinese Government, however, does not see the protests that way.

China is on the precipice of a demographic challenge unlike any ever seen on such a scale by any country before, especially one induced by government policy. While the population is graying rapidly, there are few replacement workers because the one-child policy formalized in 1980 still applies. Its enforcement has been fitful, and there have been tens of thousands of breaches, but China estimates having prevented as many as 400 million births. Less apparent to authorities, however, are the consequences.

The Chinese population between 15 and 24 years old has been falling precipitously since 2000, to barely 12 percent of the population in 2011. The population over 65 is only 8 percent in 2011, but it will rise to 20 percent by 2040 while the population between 15 and 24 will be just over 10 percent. In a state that provides almost no social welfare net -- no pensions, no health care – the growing prosperity that is producing an aging population will evaporate for the elderly, who will depend on a diminishing population to care for and support them.

There are economic forces that will compound this demographic challenge. China is determined to move up the value chain in production, just as Japan did in the 1960s and 1970s. Such movement, however, carries at least two consequences: wages rise, and the number of jobs declines. It already is well-known that Chinese enterprises, and foreign enterprises operating in China, have been offshoring jobs to Bangladesh and Indonesia and Malaysia and Vietnam because of soaring labor costs. The growing middle class is expanding a gap leaving the poor behind, making it more difficult for China to raise the next 100 million from poverty, and the rate of enterprises opening or expanding in China in order to benefit from cheap labor is in decline.

To keep the economy growing and an increasing population (despite the one-child policy) housed and fed, China is becoming the leading consumer of energy and the leading producer of carbon emissions on the planet. It will take a long time for China to catch up to the United States as a per capita consumer and polluter, but not to be the leader in both in sheer volumes and values.
The Chinese Government is very aware of the dangers presented by this twin challenge. It is addressing the carbon emissions problem aggressively by subsidizing the development of alternative fuels and power, but for the medium if not long term it cannot escape a dependence on coal for which there seems to be no technical fix as a source of significant pollution. China, like most other countries, has been discouraged by events in Japan from pursuing nuclear alternatives.

The energy challenge has been the focus of Chinese foreign direct investment. China is using accumulated foreign reserves to buy natural resources around the globe and ship them back to China. Not a small amount of resentment is building, however, against this raid on the rest of the world’s natural resources.

China faces a revolution of rising expectations that requires ever-growing quantities of energy, and a permanent challenge to create more jobs and increase wages simultaneously, another feat that appears impossible to sustain. The numbers of protests inevitably will rise in this environment that puts a premium on jobs and private responsibility.

There is also a fear of international contagion. The revolutions of colors (orange, lavender) have bled into seasons (the Arab spring). While outsiders may see no palpable threat to China, Chinese authorities are taking no chances. There is instability all around the Chinese neighborhood, from Chechnya to North Korea to Thailand to Pakistan. There are potential challenges on the peripheries (Tibet, Uighurs); there is a domestic Moslem population. There are daily battles over the seizure of land from peasants for speculation and development, all conditions that, Chinese authorities fear, could ignite something beyond control. And control is important in a country whose history in the absence of central control has been tragic.

The situation in China is inherently unstable because of the unyielding need to keep the economy expanding, employment and the middle class growing. World circumstances do not help. China has suppressed speech and responded forcefully to protests, but has delivered economically. Now, Chinese authorities must deliver economically lest more attention be drawn to the limitations on speech and the prevalence of protest. More individual freedoms surely will come with more prosperity and more international travel and global exposure, but authorities reasonably worry that they cannot maintain the breakneck speed that has produced the greatest improvement in living standards for the greatest number of people in the shortest period of time in the history of the world.

The Fragile China Doll

China has become a power in the world economy. It wants to be recognized for its economic importance, but forgiven as a new and developing country. It wants a place at every table, but not necessarily the burdens of responsibility that others at the table think it should share. It wants to project accomplishment and confidence (the Beijing Olympic ceremonies and the Shanghai Expo being the most outward indications), but it wants to be relieved of pressure. It is, domestically and internationally, layers of paradox.

China dolls are to be admired but not much handled, appreciated but not loved because they are too fragile to hold. Some Chinese authorities seem to perceive China now as a China doll, admirable but fragile, durable only as long as it is not handled. China dolls, however, are finished products, and China is a power in the making with a long way to being admired on a shelf. It will remain fragile, but must be ready for rough handling ahead.

日本——中国的写照

今日美国对中国的担忧与25年前美国对日本的担忧非常相似。当年，哈佛学者Ezra Vogel出版《日本第一：美国应当吸取的教训》一书，高度赞扬复杂官僚机器控制经济的优点。Vogel提倡美国学习日本：学生在标准化考试中取得优异成绩；日本公司的大部分产品用于出口、产品质量不断提升；当美国经济处于滞胀时，日本经济却不断腾飞。

日本大众非常欢迎Vogel的论点。他的著作被翻译成日文，至今仍为日本非小说类出版物中最受欢迎的书籍。但是，他的论点却是错误的。

日本控制型经济和经济产业省的中央主导作用促使美国起草反补贴法。面对日本政府强大的财政资源，反倾销法显得软弱无力。美国的担忧主要集中在半导体和钢铁产业，但同时也包括携带式打字机以及当时最高端、最复杂的电脑。当时流行的口号是：美国企业可与任何国外私营企业竞争，但却无法与外国政府竞争。解决的办法就是针对日本政府补贴，采取措施保护受威胁的国外（美国）企业。

颇具讽刺意义的是：美国生产商很少针对日本产品使用反补贴法这一法律武器。相反，他们继续依赖反倾销法制裁日本出口品，美国企业转而针对其他国家产品采用反补贴法，中国产品是最新的目标。但是口号仍然不变——与外国企业竞争是一码事，但与外国政府竞争却迥然不同。

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Export Controls And Investing In The United States 出口控制以及对美投资

John J. Burke — Mon, 13 Jun 2011 01:50:18 -0600

This text is based on presentations on this subject made recently by Mr. Burke to the American Chamber of Commerce in Beijing and the American Chamber of Commerce in Shanghai.

Export Controls And The China-U.S. Trade Relationship

One of the leading Chinese complaints about the trade relationship between China and the United States is that U.S. export controls, according to China, unnecessarily limit what China can buy from the United States. The Obama Administration, apparently seeing some merit in China’s complaint, is seeking substantial reform of U.S. export controls as part of the President’s initiative to double U.S. exports in five years. This blog will report on those reform efforts in a future article. This article discusses the impact those export controls have on foreign investment in the United States, including Chinese, and the current state of U.S. export controls.

Export Controls Impact Investment

Export controls impact foreign investment in the United States both directly and indirectly. They impact investment directly because export control considerations are incorporated into national security reviews of foreign investment by the Committee on Foreign Investment in the United States. This issue is discussed in greater detail in National Security And Chinese Investment In The United States, which we published on this blog in May 2011.

Export controls indirectly affect foreign investment because they may limit the ability of the foreign parent to manage and obtain the full economic benefit from its newly acquired U.S. business. If the to–be-acquired U.S. company is registered with the State Department as a manufacturer or exporter of defense articles or supplier of defense services, that company must notify the State Department 60 days before ownership of the company can be transferred to a foreign person. The State Department could revoke the company’s registration and outstanding export licenses should it disapprove of the new foreign owner. Also, depending upon the company’s technology, export licenses may be needed from either the State Department or the Commerce Department in order for the company to disclose that technology to non-U.S. persons, even non-U.S. management personnel installed by the new owners. Similarly, export licenses may be needed to export the company’s products and technology to its new foreign affiliates, reducing the economic value of the deal to the new parent.

None of these requirements is peculiar to Chinese buyers of a registered American company. They apply to all foreign persons, regardless of nationality.

The U.S. Export Control Regime

The primary export control agencies are the State Department’s Directorate of Defense Trade Controls (“DDTC”) and the Commerce Department’s Bureau of Industry and Security (“BIS”). DDTC is responsible for the International Traffic in Arms Regulations (“ITAR”), which control exports of military items and satellites. BIS is responsible for the Export Administration Regulations (“EAR”), which control exports of civilian items.

The ITAR covers items specifically designed, developed, configured, adapted, or modified for a military application. It also covers firearms and commercial satellites. Many items, originally designed for military purposes, now have widespread commercial uses, but remain subject to the ITAR even when they will be used in commercial applications. Such items remain subject to the ITAR until such time as DDTC makes a commodity jurisdiction determination that they can be released from the ITAR.

Companies that manufacture or export items subject to the ITAR must be registered with DDTC and the export of such items almost always requires a license or other written authorization from DDTC. These requirements impair U.S. export trade with China, in particular, because the United States has an arms embargo against China. As a result, items controlled under the ITAR may not be exported to China and ITAR-controlled technical data may not be disclosed to Chinese nationals even in the United States. This restriction is one of the most contentious in Chinese-U.S. relations.

The EAR, in contrast to the ITAR, has a much more limited impact on U.S. exports to China. The EAR covers exports and re-exports of almost all civilian items. However, no licenses are required for most products to most destinations, including China. Although licenses are needed for some products to some destinations or for certain end-uses or end-users, these requirements cover an extremely small percentage of U.S. exports.

EAR Export Licensing Steps

There are four basic questions to ask in determining whether an export license from BIS is needed for a particular transaction. Those questions are:

1. Is the transaction subject to the EAR?
2. How is the product classified?
3. Is the product controlled to the planned destination?
4. Can a license exception be used?

Transactions are subject to the EAR when they involve products or technical data not controlled by other U.S. agencies, such as DDTC, that are being exported from the United States, or are U.S.-origin products or technology being re-exported from one foreign country to another. The EAR also covers deemed exports and re-exports, which occur when technical data controlled by the EAR is disclosed to a foreign national in the United States or a third country national in the original country of export. The EAR does not cover the transfer or disclosure of information in the public domain.

Companies classify their products for export control purposes by determining which entry on the Commerce Control List matches their product. The Commerce Control List contains several hundred Export Commodity Classification Numbers (“ECCN”). Each ECCN contains detailed technical parameters describing the items covered. When the product does not fit within any of the ECCNs listed, it is classified as “EAR99.”

Products classified as EAR99 require export licenses only when the destination is a comprehensively embargoed country, such as Iran, or the specific end-use or end-user is prohibited for purposes of non-proliferation of chemical, biological or nuclear weapons. For other products, the exporter must match the destination and the reason for control on the Commerce Country Chart to determine whether the product is controlled to the planned destination. The following is an illustrative excerpt from the Commerce Country Chart:

The ECCN that covers the product will state the reason or reasons for control. When the only reason listed is National Security 2 (NS2), then, by looking at the Commerce Country Chart, the exporter can determine that the product is not controlled for export to Australia, but is to China and Sudan. In most cases the answer to the third question, as determined from the Commerce Country Chart, is “no” (the item is not controlled to the destination) and the transaction can go forward without an export license.

When the answer to the third question is “yes,” the exporter must move on to the fourth question and determine whether it can use an exception to the license requirements. There are 16 license exceptions listed in the EAR – were any to apply, the product could be exported to that destination without a license. One of the most popular exceptions used for exports to China is License Exception CIV, which allows exports to civilian end-users in China where the ECCN listing for product contains the legend “CIV – Yes.”

When the answer to the fourth question is “no” (no license exceptions are available), the company must apply to BIS for an export license. In most cases, BIS issues a license. Out of the 21,660 applications in Fiscal 2010, BIS approved 18,020, returned 3,513 without action (usually when the application was incomplete or no license was needed) and denied only 127. The average processing time was 29 days.

Conclusion

The export controls under the EAR have not been a major impediment to U.S. exports, including exports to China. By contrast, the export controls under the ITAR are a significant impediment to increasing U.S. exports to China. It is unlikely that the arms embargo against China would be lifted soon. However, there are numerous products currently subject to the ITAR that could be exported for commercial end-uses in China with no negative impact on U.S. national security. Reforms of the export control regime that move as many of these products as possible from control under the ITAR to control under the EAR, could pave the way for substantially increasing U.S. exports to China.

本文根据Burke 先生在中国美国商会演讲成文。

出口控制及美中关系

在美中贸易领域，美国的出口控制备受中方指责，中国认为美国的这一政策不必要地限制中国从美国进口商品。奥巴马政府认为中国的抱怨有一定依据，因此正全力着手改革美国的出口控制体系以实现总统先前提出的五年内出口翻一番的目标。本搏客将追踪分析这些改革措施。本文旨在讨论出口控制对国外资金投资美国造成的影响。

出口控制影响投资

出口控制对国外资金投资美国造成直接以及间接影响。直接影响：当国外投资委员会对外资进行国家安全审查时，出口控制始终是重要考虑因素之一。本搏客今年五月刊登的《国家安全以及中国在美投资》对此已经展开详尽论述。

出口控制对外资造成间接影响：因为它将阻碍国外母公司从新并购的美国产业全面受益。若即将被收购的美国公司是美国国务院注册的国防设备生产商、出口商或是国防服务提供者，则这一美国公司必须在所有权转移前60天内通知美国国务院。美国国务院审核后发现新的国外所有者不符合条件，则可注销该公司的注册及尚未使用的出口许可。同时，根据该美国公司的技术水准及出口许可证，该公司可能需要美国国防部或是美国商务部批准，以便向外籍员工（包括外籍管理人员）披露该技术。同理，向新母公司的海外分公司出口产品和设备也需获得出口许可证。这一切都将减低母公司的利润。

这些要求并非针对有意购买美国企业的中国企业而设，而是适用于所有外国企业和个人。

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National Security And Chinese Investment In The United States

John J. Burke — Fri, 27 May 2011 07:48:27 -0600

This text is based on presentations on this subject made recently by Mr. Burke to the American Chamber of Commerce in Beijing, the American Chamber of Commece in Shanghai, and the CCH/Wolters Kluwer conference for in-house legal counsel in Beijing.

Some Chinese Mistakenly Think They Are Unwelcome

Chinese direct investment in the United States is increasing. Last year Chinese companies doubled the amount of money they invested in the United States compared to 2009.

There are many reasons why Chinese companies would want to acquire or set up operations in the United States. Most costs of doing business in the United States, other than labor, are now cheaper than in areas of China with the advanced infrastructure that modern industrial operations need. Production in the United States often provides better access to customers; allows companies to take advantage of Buy American provisions when selling to government agencies; and enables companies to avoid trade barriers, such as antidumping or countervailing duties assessed on imports from China.

Notwithstanding these reasons for investing in the United States, many Chinese companies are hesitant to do so because of media reports on national security reviews of foreign investment that have given the impression the United States is hostile to foreign investment, or at least investment from China. The media have created the impression that Chinese companies are forced to abandon acquisitions in the United States because of political opposition and national security reviews by the Committee on Foreign Investment in the United States (“CFIUS”).

The reality is that the United States welcomes most Chinese investment. The United States has no restrictions on greenfield investment by foreigners, except for some state (non-federal) laws that limit the ability of foreign persons to purchase farmland. Thus, foreigners may create new U.S. businesses on the same basis as Americans. Recent examples of Chinese greenfield investments in the United States include Tianjin Pipe’s steel pipe mill in Texas; Suntech Power’s solar panel assembly plant in Arizona; and American Yuncheng’s gravure cylinder plant in South Carolina.

CFIUS national security reviews apply only to the acquisition of existing U.S. businesses. Even in those circumstances, only three to seven percent of foreign acquisitions each year go through the CFIUS process. Blocked acquisitions are rare; projects blocked presented unique challenges.

Chinese Transactional Failures Have Been Exceptions

A handful of Chinese acquisitions have been abandoned as a result of CFIUS review, or political opposition. However, circumstances unique to each transaction, not general hostility to Chinese investment, caused those deals to fail.

One failure was Northwest Non Ferrous International Investment Co. Ltd.’s attempted acquisition of Firstgold Corp., a gold mining company in Nevada. That acquisition was abandoned just before the end of a CFIUS review due to the expectation of an unfavorable CFIUS recommendation. Questions had been raised because of sensitive military and intelligence installations adjacent to the mines. Had those mines been located elsewhere, the acquisition likely would have sailed through the national security review.

The failed acquisitions receiving the most press attention recently include Huawei Technologies Co. Ltd.’s attempt to acquire 3Com and, more recently, assets from 3Leaf Systems. Huawei bought intellectual property rights from 3Leaf Systems, a developer of cloud computing, without filing a notification with CFIUS. CFIUS learned about the transaction and self-initiated a national security review that resulted in a recommendation that Huawei be ordered to divest.

There were several reasons why the 3Leaf transaction ended badly for Huawei. The Pentagon had serious concerns about the technology that were magnified by a lingering mistrust of Huawei following the 3Com transaction and its mishandling of the CFIUS process in the 3Leaf case. The more important reason, however, was a more general mistrust of Huawei in the U.S. Government due to allegations of close corporate connections to the People’s Liberation Army, espionage, intellectual property theft, and support for terrorist regimes (Iran, Iraq and the Taliban). These circumstances were peculiar to Huawei. The Huawei transactional failure does not indicate any general hostility to Chinese investment.

The Legal Framework And Its Operation: CFIUS And FINSA

Congress enacted the Foreign Investment National Security Act Of 2007 (“FINSA”) on July 26, 2007 in reaction to Dubai Ports World and other controversies to improve accountability and transparency in the CFIUS process. FINSA provides that the President may “suspend or prohibit any covered transaction” whenever the President finds credible evidence “that the foreign interest exercising control might take action that threatens to impair the national security.” However, the purpose of FINSA set out in the preamble to the legislation is “[t]o ensure national security while promoting foreign investment ....” Thus, FINSA reinforces that, notwithstanding the need to protect national security, promoting foreign investment in the United States remains the policy of the U.S. Government. The following statistics on CFIUS reviews in the three years (2008 to 2010) since FINSA became law demonstrates that this law is not an impediment to the vast majority of foreign acquisitions of U.S. business:

National security reviews 313
Extended investigations 83
Voluntary withdrawals (most re-filed and subsequently cleared) 42
Cases submitted to the President 0

To be governed by FINSA a transaction must be a covered transaction, which means that the transaction must involve a foreign person obtaining control over an existing US business. A covered transaction can be blocked only if it would impair national security and that impairment cannot be remedied through some other means.

FINSA defines “covered transaction” to mean “mergers, acquisitions, or takeovers . . . by or with foreign persons which could result in foreign control of persons engaged in interstate commerce in the United States.” It only covers transactions involving an existing US business. As noted previously, greenfield investments, such as the Tianjin Pipe project in Texas, are not covered. It covers an acquisition of one foreign company by another if control of a U.S. business were to change.

The regulations implementing FINSA, which the Treasury Department published for CFIUS, define “control” as:

the power, direct or indirect, whether or not exercised, through the ownership of a majority or a dominant minority of the total outstanding voting interest in an entity, board representation, proxy voting, a special share, contractual arrangements, formal or informal arrangements to act in concert, or other means, to determine, direct, or decide important matters affecting an entity . . . .

A ten percent passive investment in a U.S. company generally would not be enough to meet this definition of control. However, contractual arrangements that give a foreigner control of important matters can cause a transaction in which the foreign entity does not obtain any equity to be a “covered transaction.”

CFIUS’s implementing regulations define “foreign person” to be “(a) Any foreign national, foreign government, or foreign entity; or (b) Any entity over which control is exercised or exercisable by a foreign national, foreign government, or foreign entity.” This definition includes US subsidiaries of foreign companies.

Neither FINSA, nor the implementing regulations, defines “national security.” Consequently CFIUS has broad discretion to define national security on a case-by-case basis. Other provisions in FINSA, the implementing regulations, the legislative history and CFIUS’s subsequent actions indicate the following key areas in which national security concerns are likely to arise:

Defense industries, which would include companies that provide “defense articles” or “defense services” that are subject to heightened export controls under the International Traffic in Arms Regulations (“ITAR”) and the defense industrial base, which provides products needed for making military items;
Proximity to critical government facilities, as shown in the Firstgold case;
Critical infrastructure, defined in the implementing regulations as “a system or asset, whether physical or virtual, so vital to the United States that the incapacity or destruction of the particular system or asset . . . would have a debilitating impact on national security.” The company’s system or assets have to be big enough to make a difference under this definition.
Critical technologies, which would include (a) items controlled under the ITAR, (b) items controlled under Export Administration Regulations for national security, chemical and biological weapons proliferation, nuclear proliferation or missile proliferation reasons (probably only if the item needed a license to be exported to the acquiring company’s home country), (c) items controlled under the Export and Import of Nuclear Equipment and Materials Regulations, and (d) items controlled under the Export and Import of Select Agents and Toxins Regulations (threats to plant, animal or human health);
Energy and other critical resources, including essential raw materials for defense industries and critical infrastructure.

FINSA requires heightened review of proposed transactions in which a foreign government would obtain control of a U.S. business. There is a presumption that transactions by foreign governments or entities controlled by foreign governments receive an additional 45-day extended investigation beyond the initial 30-day review under which CFIUS clears most transactions. This presumption can be waived if the Treasury Secretary and the head of the other agency designated as the lead for the particular CFIUS review “jointly determine . . . that the transaction will not impair the national security of the United States.”

When a transaction is considered to be foreign government-controlled, FINSA requires CFIUS to consider the adherence of the country to non-proliferation control regimes, the U.S. relationship with the country, specifically on cooperation with counter-terrorism efforts, and the potential for diversion of technologies with military applications.

Conclusion

The United States is open to investment, but potential investors do need to pay attention to legitimate national security concerns. For the vast majority of foreign investors, including investors from China, the CFIUS review process is not an impediment. Greenfield investments do not require a CFIUS review. Most cross-border mergers and acquisitions do not require a CFIUS review. Most CFIUS reviews clear the transaction within 30 days. Only a handful of transactions have been abandoned as a result of national security concerns.

Unless It's All Politics, China And The United States Should Tone It Down:

Dr. Elliot J. Feldman — Mon, 25 Apr 2011 16:23:59 -0600

The World Trade Organization’s Appellate Body issued a report on March 11, 2011 in which the People’s Republic of China broke a skein of legal losses by recovering some of the ground taken by a WTO panel last autumn. The Chinese Government loudly celebrated a major victory, while U.S. Trade Representative Ron Kirk denounced a “clear case of overreaching” in a “deeply troubling” decision of the Appellate Body.

Were one to listen to the rhetoric of the two governments too closely, one might perceive the WTO proceedings as more of a political than legal affair. The Chinese did not win that much, and the United States did not lose that much. There had to have been powerful political motivations for the over-wrought pronouncements of the two sides.

China elected to consolidate complaints regarding the final Department of Commerce (“Commerce”) determinations in four different antidumping/countervailing duty investigations – hence, eight investigations into four different products – into one WTO complaint. It did not appeal any of the determinations to the U.S. Court of International Trade (“CIT”), and did not challenge any of the four final determinations of the U.S. International Trade Commission in any forum. Hence, what could have been twelve WTO cases and a like number of CIT cases came down to one WTO case.

Double Counting

China complained of many things in the WTO case, but here, too, there was selectivity. The only objection raised regarding the four antidumping final determinations was that Commerce was double-counting remedies, applying duties twice on the same cost or expense. Allegedly subsidized electricity, for example, was countervailed, but also compared to an external surrogate value as an inflated cost in the dumping case and assigned part of the antidumping margin. Meanwhile, China challenged virtually all of the subsidy findings.

The CIT already had ruled that Commerce could not investigate simultaneously for the same merchandise, over the same time period, both antidumping and subsidy allegations, because applying a non-market economy methodology in the antidumping investigation yields a double remedy. Commerce had concluded, in 2007, that it could investigate subsidy allegations in a non-market economy, notwithstanding the definition of subsidies as government financial contributions that are market-distorting.

The CIT did not deny Commerce its desire to conduct subsidy investigations of non-market economies. Instead, it ruled that Commerce would have to figure out how to avoid double-counting when conducting antidumping and countervailing duty investigations simultaneously.

The CIT decision, in the OTR case (GPX Intern. Tire Corp. v. United States, No. 08-00285, 715 F.Supp.2d 1337 (Ct. Int’l Trade 2010)), is on appeal before the Court of Appeals for the Federal Circuit (“CAFC”). The Appellate Body decision ought to strengthen China’s hand in that appeal, albeit that the Chinese Government is not a party. U.S. courts have never treated WTO decisions as dispositive, nor even necessarily persuasive, but a NAFTA panel did apply the Charming Betsy doctrine to require Commerce to interpret U.S. law compatibly with international obligations whenever possible. The CIT here has said subsidy investigations of non-market economies are permissible, but not in conjunction with dumping investigations. The CAFC, were it to uphold the CIT, would rule consistently with the international obligation articulated in the Appellate Body report. There is no U.S. court ruling putting U.S. law at variance with the international obligation.

This Chinese victory, then, already had been won. The CAFC could have, and still could, overturn the CIT. The CAFC could do so without reference to the Charming Betsy doctrine and applicable precedent unless the doctrine were invoked and well-argued by counsel for the Chinese party. Even then, the CAFC ruling, not the Appellate Body report, will determine U.S. law on this question.
Chinese authorities often still insist that the United States cannot investigate subsidies allegations while denying China market economy status. That issue, however, is not in play in the Appellate Body report. Nor would its resolution solve China’s problem with respect to Commerce’s methodology.

Extending a cramped WTO Appellate Body report interpreting Article 14(d) of the Subsidies and Countervailing Measures Agreement in Canada’s complaint against the United States over the use of cross-border benchmarks for analyzing softwood lumber prices, Commerce has treated China in countervailing duty cases the way it attempted to treat Canada. Inasmuch as Canada could not be accused of being a non-market economy, Commerce there established that the methodology of using prices from outside a country in a subsidies case is not exclusive to non-market economies. China did not seem to argue at the WTO any defect in Commerce’s interpretation of the Appellate Body’s softwood lumber report. By accepting the interpretation, it sealed its own fate.

The recognition now of China as a market economy would change very little, if anything, for China in countervailing duty cases. Applying the reasoning applied to Canada, Commerce would continue to select price benchmarks from outside China, thereby utilizing the same methodology it uses now. Indeed, China’s pleading for market economy recognition could lead to Commerce’s solution to the puzzle it was presented by the CIT: as with any other market economy, Commerce could bring dumping and subsidies cases simultaneously against a China recognized as a market economy, and nonetheless could use a countervailing duty methodology founded on the same principles as the NME dumping methodology.

For these reasons – that the CIT already had delivered this victory; that recognition as a market economy could solve Commerce’s problem more than China’s – both China and the United States have exaggerated the significance of the Appellate Body report. There may be powerful political reasons on both sides for the exaggeration, not to be found in a reasoned interpretation of the law.

The Other Chinese Victory

The other Chinese victory accorded by the Appellate Body on March 11 is little more revolutionary than the decision on double-counting, but it may have a greater impact. Commerce has been treating automatically all Chinese state-owned enterprises (“SOE”) as “public bodies,” controlled and directed by the government. This operating assumption enabled Commerce to treat the provision of inputs in the manufacturing process from SOEs as financial contributions because they automatically came from the government. Then Commerce only had to show that the price of the input, when compared to a price from outside China, was less in order to measure the size of the subsidy.

Notwithstanding the automatic treatment of SOEs as public bodies, Commerce already was completing the analysis as to whether SOEs provided inputs at prices that would make them countervailable. The Appellate Body decision will require a more complete analysis every time. Instead of assuming government control, such that the SOE is acting as a public body, Commerce will have to develop evidence that the provision of the input is not a purely economic or commercial act.

The Uruguay Round Agreements recognized that state-owned enterprises could be commercial and had to be treated without assumptions about state direction or control. Commerce’s automatic judgment was at variance with this recognition; the Appellate Body corrected Commerce by requiring it to respect the proposition that state-owned enterprises are legitimate entities in the world trading system. Were it otherwise, the United States would have a very difficult time dealing with General Motors and Chrysler, among other examples. Consequently, the Appellate Body did not take a position that could be considered very remarkable.

The United States pretends that other countries have SOEs, but that all enterprises in the United States are private. As long as that fiction is maintained, the United States will continue to treat SOEs as different and as state-controlled, whether to greater or lesser degrees. Beyond trade, the Appellate Body report theoretically could have additional impact were the definition of the SOE as a non-public body to evolve and become more accepted in the United States, but the Appellate Body report, as a legal matter, pertains only to trade, and only to subsidies disputes, nothing more.

The Losses

China lost everything else. All bank loans from state-owned banks automatically are suspect and subject to comparison for loan terms with banks outside China. There was no effective challenge to the U.S. use of out-of-country benchmarks because China’s complaint was focused on the principle rather than the particulars. The principle of comparing land values to property outside China was endorsed by the panel and left untouched by the Appellate Body; the absurdity of comparing rural Shandong Province to urban Bangkok was permitted without comment. Every other Commerce judgment about subsidies was upheld.

Because none of these issues has been adjudicated in U.S. courts, they all remain subject to challenge. The WTO did not specifically adjudicate them. However, Commerce will continue its practice with respect to all of them, and over the next cases will establish administrative practice difficult for China, as a result of neglect, to overcome.

Winning And Losing Less Than Imagined

The WTO’s decisions have only prospective effect. In addition, the United States treats every defeat as sui generis, applicable to the immediate case and no others. The United States likely will ignore the decision on double remedies, preferring the decision of the Court of Appeals. It may ignore the decision on SOEs except for the administrative reviews in the four cases brought through the WTO appeals process. It likely will promise implementation, take the maximum “reasonable period of time” possible, fail to implement to China’s satisfaction, and oblige China to request a Section 21.5 compliance panel. Consequently, it could take China years to achieve compliance from the Appellate Body decision, and then may enjoy a very limited victory. All the while, the United States Congress will decry the Appellate Body and seek to build pressure against adverse decisions like a bench coach harassing basketball referees. It was not inappropriate, as seen from Congress, that the Appellate Body Report came with March Madness.

Such a limited outcome will be the product of Chinese decisions to rely on the WTO instead of U.S. courts; to consolidate cases instead of appealing them separately; of exaggerating publicly its victory so as to arouse public (and consequently political) resistance in the United States. It will also be the product of the WTO’s institutional weakness, limited to prospective and indirect enforcement, and then only with the cooperation of the parties.

It will be important for both parties to reduce popular expectations and to manage disappointments. Otherwise, in their competition to celebrate the virtues of the WTO, they will undermine the very institution upon which both, for political if not legal and economic reasons, have decided to rely.

Feldman Addresses UNCTAD Conference on Non Tariff Measures and Chinese Foreign Trade

John J. Burke — Wed, 30 Mar 2011 12:29:01 -0600

Elliot J. Feldman was the keynote speaker opening an applied International Trade Workshop in Beijing on March 21, sponsored by the University of International Business and Economics of Beijing and the United Nations Conference on Trade and Development (“UNCTAD”). The conference, on “Non Tariff Measures and Chinese Foreign Trade,” comes at a time when there has been growing concern about global protectionism advanced by non-tariff measures, especially in China. UNCTAD is launching a major survey effort to identify non-tariff measures and to design strategies to deal with them.

Dr. Feldman was the only attorney invited to the workshop, the only speaker during the two-day conference from the private sector, and one of only two Americans. Others were university professors, international and Chinese civil servants, almost all economists specializing in trade and international development. The second American on the program was Michael Ferrantino, the Lead International Economist at the United States International Trade Commission.

Dr. Feldman emphasized how difficult it can be to identify non-tariff measures and to distinguish them from legitimate concerns about public health and safety. He shared experiences from his practice in which non tariff measures have played an important role in international trade disputes, applauded the project to create a taxonomy of non-tariff measures globally and to seek a strategy for minimizing them, and urged the workshop participants to promote an understanding of the underlying political and economic motivations for erecting such trade barriers so that compromises can be reached protecting public health and safety legitimately while minimizing impediments to international trade.

Please click here to read the text of Dr. Feldman's address.

Will Europe Conclude A Bilateral Investment Treaty With China Before The United States Does?

Michael S. Snarr — Tue, 22 Feb 2011 14:34:08 -0600

Chinese leaders have participated in high-level strategic talks with both the United States and Europe in recent months, during which China reiterated its interest in a bilateral investment treaty (BIT) with each of them. EU officials went to Beijing in December 2010 for the Third China-EU High-Level Economic and Trade Dialogue, and President Hu Jintao met with President Obama in Washington D.C. in January 2011.

There are similarities in China’s economic relationships with these two trading partners—the United States and Europe both seem to be increasingly dependent on China for the health of their financial markets and economic growth. However, differences in the relationships suggest that China may be closer to reaching a BIT with the EU than with the United States.

The United States may appear, on the surface, to be more dependent on China for financial support than Europe. China holds over $900 billion of U.S. sovereign debt. Notwithstanding the United States’ financial troubles, China continues to hold vast sums of U.S. treasuries, which has played a critical role in financing the U.S. wars in Iraq and Afghanistan, as well as the expanding costs of U.S. “homeland security” and domestic social programs. The United States has told China that it will focus “on reducing its medium-term federal deficit and ensuring long-term fiscal sustainability,” and has asked China to stimulate a domestic demand that would absorb more U.S. exports, but even if the two countries did as suggested, China still would remain the largest financial backer of U.S. debt.

Recently, as Portugal, Italy, Ireland, Greece and Spain all have threatened the stability of the euro, China has taken on a larger role as a banker for Europe. China reportedly bought €6 billion of Spanish bonds, committed to buy another €5-6 billion of Portuguese bonds, and pledged to back Europe in its efforts to bail out Greece. China’s euro commitments are still far from the level of its holdings in dollars, but the precarious state of the euro, and therefore the European Union, means that E.U. leaders may have a more compelling need for cooperation with China than the United States.

President Obama has been promoting China as a market for U.S. exports and as a solution (rather than the problem) for reducing the trade deficit, stimulating economic growth, and promoting job expansion. In his 2011 State of the Union address, he said, “To help businesses sell more products abroad, we set a goal of doubling our exports by 2014 — because the more we export, the more jobs we create here at home. Already, our exports are up. Recently, we signed agreements with India and China that will support more than 250,000 jobs here in the United States.”

E.U. leaders similarly have been looking at China to stimulate exports, economic growth and jobs. China has been the second-largest foreign market for European goods, and exports grew last year by more than thirty percent. The promise of new jobs is especially important for Europe. There have been strikes and threats of strikes in Greece, Portugal, Italy and the U.K., and fears that public sector jobs will be cut substantially as the European governments try to reign in public spending and get their financial houses in order.

Europe and the United States both have significant trade imbalances with China but, according to the European Commission’s Vice President, Joaquin Almunia, the E.U. is focused less on revaluation of the yuan and more on increasing E.U. companies’ investments in China. In addition, Europe appears to be increasingly more willing to relax export controls on high-tech goods, which might help reverse some of the trade balance and, perhaps more importantly, would gain the appreciation of Chinese officials who have complained about such restrictions among their Western trading partners.

As Europe’s interdependence with China is accelerated by the debt crisis, so also, it would seem, Europe will leap ahead of the United States in signing a BIT with China. When the two delegations discussed trade and investment issues in Beijing last December, China emerged with a commitment from the European delegation that the Europeans would “speed up a feasibility study for a bilateral investment treaty.” During President Hu’s visit to Washington, negotiations for a U.S.-China BIT were mentioned, but members of the U.S. Congress subsequently have complained about the Obama administration’s inaction on a BIT, and even FTAs with Colombia and Panama, pending for years, have remained tied up by labor rights interest groups. Negotiations and ratification of a U.S.-China BIT, although an eventual likelihood, certainly will not be easier than finalization of the agreements in Central and South America.

As the United States seems slowed by trade politics in pursuing the investment treaty that might help open the Chinese market for American companies and attract more Chinese investment into the United States, China should have an easier time accepting the terms of a BIT with Europe than with the United States. E.U. BITs typically have not provided guarantees for market access during the pre-investment phase, but rather only after the investment has been established. By contrast, U.S. BITs require that the host government provide foreign investors national treatment, for example—meaning the same rights as domestic investors—at the pre-investment stage, which remains one of the hurdles to agreement on a U.S.-China BIT.

It is not unusual for European negotiators to wait for the results of American negotiations and then seek comparable terms. The course of Chinese accession to the WTO was marked by such a strategy. However, in those negotiations, China was primarily obliged to accept tough terms. The BIT negotiations define more equal ground for the negotiating parties. Europe may not wait for the United States to extract better terms because it may not want to wait, and it may not think the United States is in a position to fare better in negotiations. Moreover, because the Europeans typically are not as demanding as the United States in BIT negotiations, China likely will find completion of a deal with Europe more attractive, and will be able to get it done more quickly.

The United States Welcomes Chinese Foreign Direct Investment - The Handful Of Deals Blocked By CFIUS Are Aberrant

John J. Burke — Mon, 07 Feb 2011 09:17:02 -0600

Chinese companies increasingly are looking to the United States not just as an export market, but also as a place to set up business. While labor costs remain higher in the United States, many other costs are lower and U.S. production allows companies to serve their customers better, take advantage of Buy American provisions in government contracting, and avoid trade barriers. Bloomberg, in a December 2010 article titled Chinese Companies Expand to U.S. Soil and Markets, reported that Chinese companies invested $2.81 billion in U.S. projects or acquisitions during the first nine months of 2010. CNN Money reported that in 2010 Chinese companies acquired or announced they were establishing more than 50 companies.

Direct Chinese investment in the United States would likely be even greater were it not for press reports that have created the impression that the United States is hostile to investment from China. The press is full of terms such as CFIUS (the Committee on Foreign Investment in the United States) and FINSA (the Foreign Investment National Security Act), and tales of Chinese companies forced to abandon planned acquisitions of U.S. companies. Some Chinese companies have been forced to abandon their acquisition plans. However, each of those celebrated cases presented unique circumstances that would not exist for the vast majority of Chinese companies who may wish to set up operations in the United States. The reality is that the United States remains one of the world’s economies most open to foreign investment, including from China.

With a few very limited exceptions, such as airlines, foreigners are as free to invest in greenfield projects that create new businesses in the United States on the same basis as Americans. Recent Chinese greenfield investments in the United States include a $1 billion steel pipe mill that Tianjin Pipe is planning to build this year near Corpus Christi, Texas; Suntech Power Holdings’ solar panel assembly plant in Arizona; and American Yoncheng Gravure Cylinder plant in Spartanburg, South Carolina. These and many other Chinese greenfield investments have not faced any significant opposition and in many cases have been able to benefit from state and local government investment incentives.

The United States does have procedures for reviewing certain foreign acquisitions of existing businesses under FINSA, conducted by CFIUS. However, as the U.S. Treasury Department noted when it published its guidance on the CFIUS process in December 2008, “CFIUS focuses solely on any genuine national security concerns raised by a covered transaction, not on other national interests.”

The President of the United States may order the divestment of a foreigner’s controlling interest in a U.S. business should he determine that such control threatens U.S. “national security.” The CFIUS review system works through voluntary filings by those parties to proposed transactions who seek to take advantage of the safe harbor that a CFIUS approval prior to an acquisition provides. The safe harbor prevents the President from undoing the deal pursuant to his authority under FINSA.

The CFIUS process is disciplined by the authority FINSA provides CFIUS to self-initiate a review as to whether any “covered transaction” threatens U.S. national security at any time. That authority is seldom used, but its existence means that foreign acquirers should give serious consideration to voluntary CFIUS filings before any national security questions may be asked.

For most companies, CFIUS review takes only thirty days. By seeking it voluntarily before the acquisition is consummated, the foreign acquirer can obtain assurance that its investment would not be destroyed by a CFIUS review, perhaps years after the acquisition. For a small number of companies, CFIUS review may become an additional forty-five day in-depth investigation. Even at this stage, however, most acquisitions are approved, although often with conditions.

A handful of Chinese acquisitions of existing U.S. businesses have been stopped either as a result of the CFIUS review process, or as a result of intense political opposition. However, in each of those cases, circumstances unique to the particular transaction, and not any hostility to Chinese investment in general, are what caused the transaction to fail. For example, when Northwest Non Ferrous International Investment Co., Ltd. dropped its plans to acquire a Nevada mining company, the reason for the unfavorable CFIUS review was the extremely sensitive nature of U.S. military installations that were adjacent to the mines to be acquired. (See The United States Remains Open To Chinese Investment). Had those mines been located elsewhere, the acquisition likely would have sailed through with little opposition. There was no objection to Chinese acquisition of gold mines. The objection was to the proximity to military installations.

Another deal effectively blocked by a CFIUS review was the proposed acquisition in 2007 by Huawei Technologies Co. Ltd. (“Huawei”) of a significant ownership stake in 3Com Corporation. Two major concerns reportedly led CFIUS agencies to oppose the deal. The first was the inclusion in the deal of 3Com’s subsidiary Tipping Point, which sells network-based intrusion prevention equipment used by the Pentagon and U.S. intelligence agencies. The second was specific to Huawei. There were allegations in the press that Huawei had engaged in corporate espionage and intellectual property theft and was involved in high tech exports to Saddam Hussein’s regime and the Taliban. The combination of mission critical U.S. military technology and an acquirer with a particularly bad reputation from the perspective of U.S. national security interests caused that deal to fail, not any general opposition to Chinese companies acquiring specific U.S. businesses.

China National Offshore Oil Corporation’s (“CNOOC”) attempted acquisition in 2005 of Unocal, a U.S. energy company, was halted by congressional and public opposition before it could undergo a CFIUS review. That opposition arose because of concerns that critical energy supplies would pass out of US control. The fact that CNOOC is a Chinese state-owned enterprise did heighten those concerns. But it was the concern over access to critical energy supplies, and not anti-Chinese animus, that drove the opposition to that deal. Very few businesses that Chinese companies may seek to acquire will present these types of concerns. And, in hindsight, many observers think that, had CNOOC not pulled out, CFIUS would have approved. Unfortunately, CNOOC did not stay involved long enough to find out.

The United States remains committed to an open investment environment and treating foreign investors, including those from China, on an equal footing with their domestic competition in the vast majority of cases where the foreign investment does not threaten to impair the national security of the United States. It was for this reason that Congress set the initial CFIUS review deadline at thirty days, to coincide with the thirty day antitrust review period under the Hart-Scott-Rodino procedures.

Even after the implementation of FINSA, most cross-border mergers and acquisitions do not require a CFIUS review. Nevertheless, CFIUS national security reviews of proposed acquisitions of U.S. businesses are going to be a crucial part of the transaction for many foreign investments in existing U.S. businesses.

The most important considerations for success in a CFIUS review are understanding in advance the institutional and other concerns of the CFIUS member agencies, and creative thinking about how to demonstrate that those concerns are not threatened, or to mitigate them. In most cases early attention to the CFIUS process and to the legitimate concerns of the member agencies can ensure smooth and timely proceedings that result in CFIUS clearance without restrictions, or on terms that preserve the value of the transaction for all parties. Voluntary review, taking advantage of the law’s safe harbor provision, likely would have helped Chinese enterprises in all of the failed transactions, and sensitivity to possible political concerns would have contained the fallout and bruised feelings in those instances where national security legitimately prevailed.

To say the outcomes of such cases in China would have been no different or worse would not be good enough. The United States is not deliberately discriminating against foreign, nor specifically Chinese, investment, but like any sovereign it is mindful of its sovereignty, and its security.

Finally, CFIUS approval is not always the end of the story. It is important to pay attention to potential concerns of Congress and the general public. The law may authorize execution of a project. Popular opinion translated in Congress can still stop one.

Media Mentions

Jing Zhu — Fri, 28 Jan 2011 10:01:12 -0600

Washington, D.C., partner Elliot J. Feldman, leader of Baker Hostetler's international trade practice, recently was interviewed by China’s National Economic Weekly regarding how to invest in the United States. The National Economic Weekly is a Xinhua News Agency affiliation that has a circulation of 200,000 and a very large online readership.

Feldman highlighted several important issues that were unknown to most Chinese business leaders but were emphasized in Mergers & Acquisitions in the United States: A Practical Guide for Non-U.S. Buyers, a treatise for CCH/Wolters Kluwer/Aspen coauthored by a team of 27 Baker Hostetler attorneys under his direction. First, he recommended potential Chinese investors to start Greenfield projects, and carefully select origination and destination of their investment to fully utilize preferential tax treatments offered by bilateral investment treaties and U.S. tax laws.

Episodes of failed Chinese investment initiatives in the United States have persuaded many Chinese that national security is a post 9/11 excuse to restrict China in the U.S. economy. However, in Feldman’s view, China’s business leaders have no reason to be deterred by the Committee on Foreign Investment in the United States’ review process. The United States is the most open major economy in the world, and the treatise demystifies how to navigate through this process by providing specific and detailed guidance, through real-world examples.

Additionally, he reminded the Chinese investors not to miss the forest for the trees. For instance, they need to evaluate carefully intellectual property rights, which could be the most valuable asset to be acquired in a deal for a U.S. company. Also, it is prudent and wise to retain the best lawyers and other professionals in conducting due diligence. Although expenses might seem high, it pays off in the long run to engage the best. He alerted the Chinese business community that minimizing potential legal risks is as important as maximizing financial profits in investing in the United States.

At the end of the interview, Feldman advised the Chinese business leaders to adopt the German management model once they set up facilities in the United States. In order to win the hearts and minds of U.S. politicians and people, he suggested Chinese companies hire more U.S. workers and actively engage them in operations.