International Trade Law News

An aerospace engineer formerly employed by Rockwell International and Boeing was sentenced on February 8, 2009 to 15 years and eight months in federal prison after being convicted on charges of economic espionage and acting as an agent of the People's Republic of China (PRC).

Dongfan "Greg" Chung, 73, of Orange, California, was convicted in July 2009 after a 10 day bench trial held in U.S. Federal Court in Santa Ana, California on one count of acting as a foreign agent, one count of conspiring to violate the Economic Espionage Act of 1996, six counts of violating the EEA and one count of making a false statement to the Federal Bureau of Investigation. In his written decision after the trial, United States District Judge Cormac J. Carney found that Mr. Chung had been an agent of the PRC for over thirty years.

At the sentencing hearing, Judge Carney said that he could not "put a price tag" on national security, and that with the long sentence for Mr. Chung he wanted to send a signal to China to "stop sending your spies here."

The case against Mr. Chung resulted from an investigation into Mr. Chi Mak who was convicted of providing defense articles to China. Mr. Mak was sentenced in March 2008 to more than 24 years in prison. Four of Mr. Mak's family members later pleaded guilty to similar charges.

According to the evidence presented during Mr. Chung’s trial, individuals in the Chinese aviation industry began sending Mr. Chung "tasking" letters as early as 1979. Over the years, the letters directed Mr. Chung to collect specific technological information, including data related to the Space Shuttle and various military and civilian aircraft. Mr. Chung responded in one undated letter that "I would like to make an effort to contribute to the Four Modernizations of China." In various letters to his handlers in the PRC, Mr. Chung referenced engineering manuals he had collected and sent to the PRC, including 24 manuals relating to the B-1 Bomber.

Between 1985 and 2003, Mr. Chung made multiple trips to the PRC to deliver lectures on technology involving the Space Shuttle and other programs During those trips he met with PRC government officials, including agents affiliated with the People’s Liberation Army. Mr. Chung and PRC officials exchanged letters that discussed Mr. Chung’s travel to China and recommended methods for passing information, including suggestions that Mr. Chung use Chi Mak and his wife Rebecca to transmit information.

In September 2006, FBI and NASA agents searched Mr. Chung’s house and found more than 300,000 pages of documents from Boeing, Rockwell and other defense contractors inside the house and in a crawl space underneath the house. Among the documents found in the crawl space were scores of binders containing decades' worth of stress analysis reports, test results and design information for the Space Shuttle, Delta IV Rocket, F-15 fighter, B-52 bomber, CH-46/47 Chinook helicopter, and other proprietary aerospace and military technologies.

According to reports, Mr. Chung told the judge during the sentencing hearing that he had taken the information to write a book.

Mr. Chung's attorney plans to appeal.

Labels: China;

Registration is now open for the U.S.-China High Technology Working Group public-private sector dialogue that will be held in the Reagan Building in Washington, DC on September 29, 2009.

The one-day event will feature a number of speakers on U.S.-China high technology trade-related issues, including export controls.

The agenda for the program can be found here. Registration is $145.

Labels: BIS, China;

Today marked the conclusion of the first U.S.-China Strategic and Economic Dialogue held in Washington, DC. At the conclusion of the meetings, the U.S. and China issued a Joint Fact Sheet summarizing the issues and action items agreed to during the two days of discussions.

The fact sheet contained several items of note on U.S. trade-regulatory issues.

Regarding foreign direct investment in the U.S., the fact sheet indicates that the U.S. "confirms that the Committee on Foreign Investment in the United States (CFIUS) process ensures the consistent and fair treatment of all foreign investment without prejudice to the place of origin."

On antidumping issues, the United States recognized "the continued progress China has made in its market reforms and will earnestly consider China's concerns, and will consult through the JCCT [US-China Joint Commission on Commerce and Trade] in a cooperative manner to work toward China's Market Economy Status in an expeditious manner." This has been an important issue for China, since for antidumping purposes China is treated as a non-market economy, a designation that typically leads to higher antidumping duty margins.

With respect to export controls, the U.S. and China agreed "to accelerate the implementation of "Guidelines for China-U.S. High Technology and Strategic Trade Development" and expeditiously formulate the Action Plan on Expansion of China-U.S. High Technology and Strategic Trade Cooperation in Priority Sectors.

The Guidelines referred to in the fact sheet were signed in December 2007 by former Under Secretary of Commerce Mario Mancuso and MOFCOM Vice Minister Wei Jiangguo. Under the Guidelines, the Commerce Department and MOFCOM agreed to jointly identify and carry out steps to enhance secure high technology and strategic trade. For example, the Commerce Department and MOFCOM will continue to review U.S. dual-use policy to identity and implement appropriate processes to streamline the licensing process for legitimate civilian trade. The Guidelines also recognized the critical role of end-use visits conducted by BIS in ensuring the protection of U.S. national security interests in the enhancement of high technology trade.

Labels: Antidumping, CFIUS, China;, Export Controls

The number of antidumping and countervailing duty petitions being filed in the U.S. on steel products from China is on the rise.

On June 5, 2009, WP Industries, Inc., ITC Manufacturing, Inc., J&L Wire Cloth, Inc. and Nashville Wire Products Mfg. Co., Inc. filed antidumping and countervailing duty petitions with the U.S. Department of Commerce and U.S. International Trade Commission against imports of wire decking from China.

The proposed scope of the investigations on wire decking includes welded-wire rack decking for industrial and other commercial storage racks or pallet rack systems produced from carbon or alloy steel wire.

Wire decking is classified under Harmonized Tariff Schedule of the United States (HTSUS) subheadings 9403.90.8040, 9403.20.0020, 7217. 10, 7217.20, 7326.20, 7326.90.

These antidumping and countervailing duty petitions follow similar petitions filed on May 27 and 28 against prestressed concrete steel wire strand and steel grating, respectively, from China.

More antidumping and countervailing duty cases against other types of imported steel products from countries in addition to China are expected to be filed in the coming months.

Labels: Antidumping, China;, Countervailing Duties

The U.S. International Trade Commission (ITC) announced in today's Federal Register the initiation of a market disruption investigation on certain passenger vehicle and light truck tires from China. This case is being initiated by the ITC after receiving a petition filed by the United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Workers International Union.

Section 421 was added to the Trade Act of 1974 by the U.S.-China Relations Act of 2000 (H.R. 4444), which established permanent normal trade relations with China and cleared the way for China's accession to the World Trade Organization (WTO). The China-specific safeguard provision was added to U.S. law in order to alleviate concerns over possible market disruption due to increased imports from China during the first 12 years that it is a WTO member.

In Section 421 investigations the ITC determines whether imports of a product from China are being imported into the U.S. in such increased quantities or under such conditions as to cause or threaten to cause market disruption to the domestic producers of like or directly competitive products. If the ITC makes an affirmative determination, it proposes a remedy to the President and the President makes the final remedy decision. Such remedies can include quotas and other relief.

According to the petition filed in this case, China exported nearly 46 million consumer tires with a value of more than $1.7 billion to the U.S. in 2008, making it the largest source of consumer tire imports. The petition also claims that imports of consumer tires from China increased from 2004 to 2008 by 215% in volume and 295% by value.

This Section 421 investigation will move very quickly. The ITC has already issued questionnaires to producers and importers, and responses to these questionnaires will have a large impact on the outcome of the case. Companies affected by this investigation, including those in the automotive industry and retailers of tires, only have until May 5, 2009 to notify the ITC that they intend to participate.

The Bush administration considered and rejected seven Section 421 petitions. Thus, this investigation will be watched very closely to determine how the Obama Administration responds if the ITC recommends that relief be granted.

Labels: China;, ITC

The U.S. Attorney for the Northern District of California today announced that a grand jury in San Jose, California indicted Mr. Fu-Tain Lu as well as two companies Mr. Lu founded, Fushine Technology, Inc., located in the San Jose area and Shenzen, China-based Everjet Science and Technology Corporation, conspired to export microwave amplifier products to China without obtaining the required licenses or other approvals from the U.S. Department of Commerce. Mr. Lu was also charged with two counts of making false statements to a government agency. Mr. Lu was arrested earlier this week at San Francisco International Airport after disembarking a flight.

According to Everjet's website, the company specializes in "providing RF and Microwave components, test instrumentations, and Satellite communication systems for markets in HongKong and China."

Microwave amplifers and microwave assemblies/modules with certain specifications are classified in ECCN 3A001.b.4 on the Commerce Control List and are controlled for National Security (NS Column 2) and Anti-Terrorism (AT) reasons. Products subject to NS-2 controls require an export license from the Bureau of Industry and Security prior to be exported to China.

The indictment alleges that the items Fushine shipped and attempted to ship products controlled for national security reasons to China without the required export licenses. The indictment quotes an internal company e-mail in which an Everjet employee told a Fushine employee, “Since these products are a little bit sensitive, in case the maker ask [sic] you where the location of the end user is, please do not mention it is in China.” The indictment also quotes from another e-mail in which Lu advises a subordinate to pretend that the intended end-user for an item is in Singapore rather than China.

Labels: China;, Export Controls

In a widely expected move, today the U.S. steel industry filed antidumping and countervailing duty petitions against Oil Country Tubular Goods from China. No other countries were named in the petitions.

The petitioners are Maverick Tube Corporation, United States Steel Corporation, TMK IPSCO, V&M Star L.P., Wheatland Tube Corp., Evraz Rocky Mountain Steel, and the United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Workers International Union, AFL-CIO-CLC.

Labels: Antidumping, China;

Manhattan District Attorney Robert M. Morgenthau today announced that an 118-count indictment (pdf) was brought by a grand jury in New York County against Li Fang Wei, a Chinese citizen and his company for charges relating to the misuse of New York City banks and the proliferation of illicit missile and nuclear technology to the Government of Iran. The Chinese company, known as LIMMT, is an alleged supplier of prohibited weapons material to the Iranian military and was designated by the Treasury Department Office of Foreign Assets Control (OFAC) in 2006 for providing material support to Iran's missile program.

The indictment alleges that the defendants engaged in fraudulent business practices to gain access to the U.S. financial system. The defendants were each indicted on 117 counts of Falsifying Business Records in the First Degree, which is punishable by up to 1⅓ to 4 years in prison, and one count of Conspiracy in the Fifth Degree, which is punishable by up to 1 year in prison.

In a related action, OFAC today designated Li Fang Wei (spelled Li Fangwei by OFAC) and the names of eight LIMMT front companies as aliases on the list of Specially Designated Nationals under Executive Order 13382 for their connection to Iran's missile proliferation network.

The front companies include Ansi Metallurgy Industry Co. Ltd.; Blue Sky Industry Corporation; Dalian Carbon Co., Ltd.; Dalian Sunny Industry & Trade Co., Ltd.; Liaoning Industry and Trade Co., Ltd; SC (Dalian) Industry & Trade Co., Ltd.; Sino Metallurgy & Minmetals Industry Co., Ltd; and Wealthy Ocean Enterprises Ltd.

Labels: China;, OFAC, Sanctions; Iran

The U.S. Department of Commerce (DOC) yesterday announced its affirmative final determination in the antidumping duty investigation on imports of circular welded carbon quality steel line pipe from the People’s Republic of China. Welded line pipe is used for the transmission of gas or oil, generally in pipeline systems.

Mandatory respondent, Huludao Steel Pipe Industrial Co., Ltd., received a final dumping rate of 73.87 percent. Three Chinese exporters received a separate rate of 73.87 percent. All other Chinese producers/exporters of welded line pipe received the China-wide rate of 101.10 percent, including Chinese mandatory respondent, Shanghai Metals & Minerals Import & Export Corp., as this company withdrew from the investigation.

As a result of this final determination, Commerce will instruct U.S. Customs and Border Protection to collect a cash deposit or bond based on the final rates.

The U.S. International Trade Commission (ITC) is scheduled to issue its final injury determination on or about May 7. If the ITC makes an affirmative final injury determination that imports of welded line pipe from China materially injure, or threaten material injury to, the domestic industry, Commerce will issue an antidumping order.

The petitioners in this antidumping investigation are Maverick Tube Corporation, United States Steel Corporation, Tex-Tube Company, and the United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Workers International Union, AFL-CIO-CLC.

Expect to see a number of antidumping petitions to be filed in the U.S. in the coming months on additional steel products from China and other countries.

Labels: Antidumping, China;

Earlier this week, a federal jury in Los Angeles, California convicted Zhi Yong Guo, a resident of China, of conspiracy and exporting and/or attempting to export thermal-imaging cameras to China without the required Commerce Department export licenses.

Guo's accomplice, Tah Wei Chao, also a Chinese national, previously pleaded guilty to one count of conspiracy and two counts of exporting and/or attempting to export restricted items.

According to the Justice Department, in March 2008 Chao ordered 10 thermal-imaging cameras (classified as ECCN 6A003 on the Commerce Control List) from FLIR Systems, Inc. for $53,000. Representatives from FLIR Systems repeatedly warned Chao that the cameras could not be moved outside of the United States without an export license issued by the Department of Commerce. Both Chao and Guo were arrested at Los Angeles International Airport in April 2008 after authorities recovered the 10 cameras that had been hidden in their suitcases, stuffed in shoes and concealed in clothing. Each of the cameras had a warning sticker stating: “This product is an export controlled item. Authorization by the U.S. Government must be obtained prior to any shipment outside of the United States.”

In addition to the 10 cameras intercepted by federal authorities at LAX, Chao admitted that, acting on Guo's behalf, he shipped three cameras to China in October 2007. The evidence presented during the at trial showed that Guo, an engineer and a managing director of a technology development company in Beijing, directed Chao to obtain the cameras for Guo’s clients, the Chinese Special Police and the Special Armed Police.

Guo is scheduled to be sentenced by Judge Walter on May 11. Chao, who faces a statutory maximum penalty of 60 years in prison, is scheduled to be sentenced on March 16.

Labels: China;, Export Controls

The Boston Business Journal reported today that the U.S. Attorney for Massachusetts has charged three employees of Chitron Electronics Inc., a Waltham, Massachusetts affiliate of China-based Chitron Electronics Co. Ltd., with conspiracy to violate U.S. export control laws.

The story states that the three were charged with making false statements on export declarations by indicating the the products were being shipped to Hong Kong, when in fact the products were destined for mainland China.

According to the company's website, Chitron Electronics Co. Ltd. is one of the largest independent distributors of electronic components in China.

UPDATE: The U.S. Attorney's office has issued a press release containing more details on this case. The release states that Chitron's "Hong Kong office was merely a transshipment point or shipping office; it was set up to act as a freight forwarder -- to receive shipments from Chitron-US and re-ship or transship them to Mainland China thereby circumventing U.S. export laws and license requirements."

Labels: China;, Export Controls

Last week the U.S.-China Economic and Security Review Commission (USCC), the bipartisan Commission, established by Congress to analyze the economic and national security relationship between the U.S. and China, released its Sixth Annual Report to Congress.

The lengthy report (which one commissioner called "a cure for insomnia"), contains 45 specific recommendations to Congress for further action. The following is a summary of some of the more important trade and national security recommendations:

• In order to prevent the proliferation of weapons technology, the USCC recommends that Congress urge the administration to enhance its cooperation with China in strengthening export control and border control programs and in improving the capacity of Chinese officials to implement those programs.

• Congress should assess the adequacy of and, if needed, provide additional funding for military, intelligence, and homeland security programs that monitor and protect critical American computer networks and sensitive in formation, specifically those tasked with protecting networks from damage caused by cyber attacks from China.

• Congress should assess the security and integrity of the supply chain for computer equipment employed in those government and contractor networks—particularly those used by the Department of Defense—and, if necessary, provide additional funding to ensure the acquisition of equipment from trustworthy sources.

• Congress should urge the administration to employ more aggressively all trade remedies authorized by WTO rules to counteract the Chinese government’s practices and recommends that Congress urge the administration to ensure that U.S. trade remedy laws are preserved and effectively implemented to respond to China’s unfair or predatory trade activities so as to advance the interests of U.S. businesses.
  

• Congress should enact legislation that will ensure an effective response to China’s currency manipulation.
  

• Congress should create enforceable disclosure requirements regarding the investments in the United States of all foreign sovereign wealth funds and other foreign state-controlled companies and investment vehicles. Such disclosure requirements, embodied in law or regulation, should include but not be limited to holdings in any public or private company, hedge fund, private equity fund, investment partnership, and/or investment vehicle.

• Congress should monitor the implementation and application of the Foreign Investment and National Security Act of 2007 and other appropriate laws and regulations with respect to the possibility of China’s sovereign wealth funds acting in concert with other Chinese government-controlled companies and/or investment vehicles in a manner that technically fails to activate the established CFIUS review process.

The PDF version of the complete 400+ page report can be found here.

Labels: China;

The Government Accountability Office (GAO) today publicly released a report (pdf) on U.S. export controls on the sale of semiconductor manufacturing equipment and materials to China and the state of China's semiconductor manufacturing industry. In its report, the GAO recommends that the Secretary of Commerce suspend the Validated End-User (VEU) program until the Commerce Department can conduct on-site reviews in China to ensure that the items shipped to the VEUs in China are used as intended.

Representatives Howard Berman (D-CA) and Ileana Ros-Lehtinen (R-FL), the Chairman and Ranking Member, respectively, of the House of Representatives Committee on Foreign Affairs, requested the GAO to update its 2002 report in order to learn of changes in the Chinese semiconductor manufacturing sector and to U.S. export control policies over the sale of semiconductor manufacturing equipment and materials to China.

At the outset, the report notes that since 2002, "China’s ability to manufacture semiconductors has steadily advanced, but semiconductors produced commercially in China remain approximately one generation, or about 1 to 2 years, behind state-of-the-art semiconductors produced in the United States." The report also states that China continues to rely on imports of new and used semiconductor manufacturing equipment from Europe, Japan and the United States for production of integrated circuits.

Next, the report discusses changes in U.S. export control laws on the sale of semiconductor manufacturing equipment and materials to China since 2002, including the Validated End-User (VEU) program for China that was introduced by the Bureau of Industry and Security (BIS) in June 2007.

The GAO's assessment found problems and deficiencies in the VEU program, including:

• The advantages of the VEU program anticipated by Commerce have not yet been realized because few U.S. exporters have shipped items to China under the Authorization VEU. As of June 2008, only one of the three validated end-users authorized to receive semiconductor equipment and materials had received any items under the program. In addition, only 6% of the total exports of semiconductor manufacturing equipment to China have taken place under the VEU program. The remaining 94% were exported under an export license.

• BIS may not be able to ensure that semiconductor equipment and materials exported to China are used as intended because it has not negotiated a VEU-specific agreement with the Chinese government for conducting on-site reviews under the VEU program and lacks specific procedures for carrying out these reviews.
  

As a result of its review of the VEU program, the GAO recommended that in order to better promote the VEU program’s objective of trade facilitation and enhanced oversight, the Secretary of Commerce should suspend the VEU program to China until a VEU-specific agreement and procedures are established for on-site reviews. Specifically, the GAO said the Commerce Department should:

• Negotiate a VEU-specific agreement with the Chinese government to conduct on-site reviews or amend the 2004 End Use Visit Understanding (EUVU) to include the Validated End-User program; and

• Develop procedures for conducting on-site reviews that are applicable to all validated end-users.

The report notes that the Commerce Department disagreed with the GAO's recommendations, stating that the report’s premise— that the VEU program has no adequate mechanism to oversee exports of semiconductor equipment to China—is incorrect. Commerce first contends that on-site reviews could be conducted under the 2004 EUVU or a VEU-specific addendum to the EUVU, which it is currently negotiating with the Chinese government. Commerce also asserted that procedures for selecting on-site reviews exist, that general procedures for end-use checks are in place, and that specific guidance for on-site reviews must be developed on a case-by-case basis.

Labels: BIS; EAR, China;