International Trade Law News

The Bureau of Industry and Security (BIS) announced today that the next session of the U.S.-China High Technology Working Group (HTWG), which will be held in Washington, DC at the end of September 2009 will include a public-private dialogue on Tuesday, September 29, 2009 (the day before Update 2009 begins) in cooperation with the National Association of Manufacturers (NAM).

Participants in the public-private HTWG event will focus on identifying barriers to U.S.-China high technology trade, particularly in two of the largest categories of bilateral advanced technology trade: civil aviation-aerospace and information technology. The principal goals of this dialogue are to offer an opportunity for U.S. and Chinese companies to interact with each other and with government officials directly on these issues, and to learn from individual U.S. and Chinese companies about the ways in which the two governments can further support high technology trade for civilian end-uses in China.

The HTWG, which was established in 2005, meets twice a year to discuss ways to facilitate secure, civilian high technology trade between the U.S. and China.

Labels: China, Export Controls

An antidumping petition was filed today with the U.S. International Trade Commission and Department of Commerce against woven electric blankets from China.

The petitioner in this case is Jarden Consumer Solutions, a subsidiary of Jarden Corporation (NYSE: JAH) and the owner of Sunbeam Bedding and several other well known consumer brands, including Mr. Coffee.

The petition identifies the product allegedly sold at less than fair value as finished or unfinished woven electric blankets of all sizes including twin, full, queen and king sizes. The subject blankets consist of a shell of woven fabric, made of synthetic or natural fiber, or a blend of synthetic and natural fiber which contains heat-producing wire whose temperature is controlled by one or more thermostats or controllers. Imported woven electric blankets are classified under Harmonized Tariff Schedule of the United States (“HTSUS”) subheading 6301.10.0000 and are currently subject to an 11.4% duty rate.

Labels: Antidumping, China

Representative Brad Sherman (D-CA), Chairman of the House Foreign Affair's Committee's Subcommittee on Terrorism, Nonproliferation and Trade Brad Sherman (D-CA) has announced that the subcommittee will hold a hearing next week on U.S. export controls on satellite technology.

The hearing, which will be held at 1 p.m. on April 2, 2009 in the room 2175 of the Rayburn House Office Building, will feature the following witnesses:

Labels: China, Export Controls, ITAR

As a follow-up to our previous post on negotiations involving the China Validated End-User (VEU) program, the Bureau of Industry and Security and China's Ministry of Commerce last night concluded an agreement that would fully implement the China VEU program. Among other things, the agreement permits BIS officials to conduct on-site inspections of the companies in China that have been designated as VEUs.

BIS announced the agreement in the following press release:

WASHINGTON, D.C. – The Bureau of Industry and Security (BIS) today announced the full implementation of the Validated End-User (VEU) program for the People’s Republic of China. With agreement on procedures to ensure the program’s secure and efficient operation, civilian U.S.-China high-technology trade will benefit from the continued export of certain products to VEU-approved companies without individual licenses. The VEU program facilitates civilian trade by reducing administrative and logistical hurdles for certain exports to pre-screened companies in China.

“We are pleased to have reached this milestone agreement with China, one of our nation’s most important trading partners,” Under Secretary of Commerce Mario Mancuso said. “This agreement will maximize the security and trade-enhancing benefits of the VEU program, and continue a promising chapter in civilian U.S.-China high technology trade. U.S. exporters now have a more streamlined way to export to companies in China who have a record of using U.S. technology responsibly.”

Established in 2007, the VEU program uses a market-based approach to facilitate civilian high-technology trade with China. The program permits civilian companies in China, who pass a rigorous national security review and agree to strict follow-on compliance obligations, to receive under a VEU-specific authorization the same U.S.-controlled items they could previously receive under individual Commerce Department licenses.

Labels: BIS, China

Bloomberg reported this afternoon that the Commerce Department's Bureau of Industry and Security (BIS) and the Government of the People's Republic of China are making a last ditch effort to finalize an agreement that would allow the China Validated End-User (VEU) program to continue by permitting BIS officials to conduct on-site inspections in China.

The Washington Times reported last month that BIS was close to issuing a new regulation that would suspend the China VEU program until China agrees to on-site inspections of the five Chinese companies that have been granted VEU status. That regulation has not yet been issued.

Under Secretary of Commerce Mario Mancuso responded to the Washington Times report by saying that "the lack of an agreement diminishes VEU’s trade enhancing benefits, and Commerce is evaluating all options related to the program for China, including suspension."

In October 2008, the Government Accountability Office recommended that the Secretary of Commerce suspend the VEU program until BIS was permitted to conduct on-site reviews in China to ensure that the items shipped to the VEUs in China are used as intended.

Labels: BIS, China

The Washington Times reported tonight that the Bureau of Industry and Security (BIS) is close to issuing a new regulation that would suspend the China Validated End-User (VEU) program until China agrees to on-site inspections of the five Chinese companies that have been granted VEU status. The article states that:

A Commerce Department official, who spoke on the condition of anonymity because of ongoing diplomatic negotiations, told The Times that the Bush administration plans to suspend the program unless it can impose safeguards before it leaves office next month.

"This program will either be fixed or ended before Jan. 20," the official said, adding that a decision will be made "in days, not weeks."

China could avoid a suspension of the program by agreeing to U.S. demands for on-site inspections. The official said, however, that it does not appear likely that Beijing will make concessions before the Bush administration leaves office.

Labels: BIS, China

The Norfolk, Virgina-based The Virginian-Pilot newspaper reports on last week's arrest of Mr. Shu Quan-Sheng, the President of AMAC International, for violating the Arms Export Control Act and FCPA.

The article notes that:

The recent arrest of a Newport News scientist on charges of selling space technology to China is part of an ongoing U.S. crackdown on illegal arms sales to the communist nation.

Labels: China, Export Controls

The price of wire hangers from China is going to be remain high. By a vote of 6-0, the U.S. International Trade Commission (ITC) today made a final affirmative injury determination in the antidumping case on steel wire garment hangers from China.

As a result of the ITC's affirmative determination, the Department of Commerce will issue an antidumping duty order on imports of this product from China requiring the payment of cash deposits for antidumping duties ranging from 15.44% to 186.98%.

The petitioner in this investigation was Alabama-based M&B Metal Products Company, Inc. The scope of this antidumping investigation covers a wide range of steel wire garment hangers that are used by the dry cleaning, industrial laundry, textile, and uniform rental industries. These hangers are are classifiable under HTS number 7326.20.0020.

Labels: Antidumping, China

The Financial Times reported today that the United States Trade Representative is close to filing a complaint against China in the World Trade Organization challenging China's export restrictions on raw materials used in steel-making and other industries.

The article states:

The US has been working on the case intensely for the past few months, and could move ahead with a request for consultations – the first step in the WTO dispute settlement process – within weeks, according to people close to the discussions.

A WTO fight over China’s treatment of raw materials would shake up the global steel and chemicals industries, where China has emerged as a leading producer and competitor to western companies in recent years.

The final decision has yet to be made but a move by the US before the presidential election in early November would support Republican claims that the Bush administration has not been shy about bringing WTO cases against China that it believes it can win. Amid increasing scepticism about the benefits of trade in the US, Democrats in Congress have attacked the administration for being too lax on trade enforcement.

The US is expected to argue that Chinese export quotas and taxes on raw materials such as metallurgical coke, molybdenum, silicon carbide and fluorspar used in steel production artificially deflate domestic prices and inflate global prices, putting US producers at a disadvantage in violation of WTO rules.

US officials have spent the past several months narrowing the focus of a potential case from an initial list of more than a dozen raw materials to a handful of products where the US is confident that China breached the “protocol of accession” it signed on joining the WTO in 2001, one person familiar with the matter said. Other items that have been considered include zinc, bauxite and antimony.

Labels: China, USTR

The Bureau of Industry and Security (BIS) announced in today's Federal Register that it is initiating a foreign availability assessment of uncooled thermal imaging cameras incorporating microbolometer focal plane arrays in China.

These specialized cameras are controlled for national security reasons under Export Control Commodity Classification Number (ECCN) 6A003.b.4.b on the Commerce Control List.

BIS's Sensors and Instrumentation Technical Advisory Committee (SITAC) has indicated that these cameras are available in China in sufficient quantities to render the U.S. export control of the cameras ineffective.

Public comments on this foreign availability assessment are due on September 17, 2008.

Labels: BIS, China

The Knoxville News Sentinel continues their coverage of the trial of University of Tennessee Professor J. Reece Roth who is accused of violating the Arms Export Control Act by providing technical data to a Chinese national in the United States. Yesterday's main witness for the prosecution was Mr. Xin Dai, the Chinese graduate student at the center of the controversy. An Iranian graduate student also took the stand.

According to the indictment, Mr. Dai was a citizen of China who held a F-1 visa while living in Knoxville, Tennessee and was enrolled as a graduate student studying for a Ph.D. in Electrical Engineering with the University of Tennessee College of Engineering. Mr. Dai was also employed by the University of Tennessee College of Engineering as a Graduate Research Assistant and Graduate Teaching Assistant from August 2002 to August 2006, during which time he worked under the supervision of Professor Roth, Director of the University of Tennessee Plasma Sciences Laboratory . In May 2005, Roth assigned Dai to work on the government contract for the development of an unmanned aerial vehicle.

The article reports:

"At the time, I had no idea what export control data was," he told jurors in U.S. District Judge Tom Varlan's courtroom.

Xin said Roth was considered a plasma-researching rock star in China.

"In China, he has a very prestigious reputation," Xin said. "It was a dream for me coming here. … I came here primarily because of Dr. Roth."

Xin testified that he knew there were supposed to be limitations on his involvement in the military project, including being barred from conducting tests on the drone itself.

"Were you allowed to go to AGT?" Theodore asked Xin.

"No, I don't think so," he said.

Roth took him to AGT anyway to meet with employees about a "breakthrough" in the work, Xin said. Roth also instructed Xin to send a report to a Chinese professor via e-mail, a report that the government contends contained information about the project while Roth was himself at Fudan University in Shanghai. Roth cited e-mail problems as the cause for having the document sent to the Fudan professor, Xin testified.

* * *

But Xin still praised Roth from the witness stand Wednesday.

"I admire him," Xin said. "This is what Dr. Roth told me to do - tell the truth. He said the purpose of scientific research is truth."

Iranian graduate student Sirous Nourgostar, who prosecutors also allege Roth illegally allowed access to project information, testified that Roth offered him similar advice.

"He told me to tell the truth or they would send me back to Iran," Nourgostar testified.

Labels: China, ITAR

The U.S. Department of Commerce’s Bureau of Industry and Security (BIS) has imposed a $90,000 civil penalty ($10,000 per violation) on Taiwan's Johnson Trading & Engineering Company, Ltd. for knowingly causing the unlicensed exports of computer chips to China. BIS also charged that Johnson Trading took action to evade the EAR and acted with knowledge of a violation.

According to BIS, on seven occasions between February 2003 and December 2003, Johnson Trading took actions to evade the EAR and knowingly caused the unlicensed exports of SRAM modules, an EE Mixed module and an EEPROM module (all classified as ECCN 3A001.a.2.c) from the U.S., via Taiwan and Hong Kong, to China. Johnson Trading allegedly ordered the computer chips from a U.S. exporter and falsely represented to that exporter that the country of ultimate destination was Taiwan. Following the shipment of the computer chips to Taiwan, Johnson Trading arranged and facilitated for the items’ subsequent shipment to China via Hong Kong. The computer chips in question were subject to the EAR and controlled for national security and anti-terrorism reasons.

Johnson Trading also agreed to a suspended five-year denial of export privileges and to an audit of the company’s export compliance program. Under the settlement agreement Johnson Trading must provide a copy of their export compliance program to BIS's Office of Export Enforcement within seven months. If Johnson Trading complies with the terms of the settlement agreement, BIS will suspend $30,000 of the $90,000 penalty.

Labels: BIS; EAR, China, Export Controls

Another good post in the Mexico Law Blog. This time on companies considering moving their operations from China to the U.S. and Latin America:

William Armbruster and Bill Mongelluzzo recently wrote an interesting article in the Shipping Digest discussing how many businesses that have outsourced manufacturing operations to China are now transferring (or seriously considering transferring) those operations to the U.S. or Latin America, particularly Mexico.

In deciding whether to leave China, businesses are focusing on "total cost of ownership" of their China operations, which, according to the article, "include the costs of labor, raw materials, transportation, taxes, port congestion, intellectual property protection and import duties." The article suggested that the dramatic appreciation of the Chinese yuan in relation to the U.S. dollar over the last 3 years has substantially affected certain elements of the total cost of ownership.

The article continued:

"Higher transportation costs must be factored into the entire supply chain, from the sourcing of raw materials used in the manufacturing process, to the ocean and inland costs of transportation of the finished product as it moves from the factory to retail outlets. On that scale, Latin America, and especially Mexico, rank favorably.

Manufacturers of products that include petroleum, plastic or steel have made Mexico a popular location for new or expanded production because those raw materials can be sourced competitively in Mexico.

Although wages in Mexico are higher than in Asia, they are still much lower than in the United States. In addition, Mexico’s proximity to the U.S. market cuts down on transportation costs, especially for bulky products such as appliances. Central America and the northern rim of South America also enjoy a time advantage in comparison with Asia. The faster delivery time can be important for producers of fashion items and apparel that change with the seasons."

In reviewing the total cost of ownership, businesses considering transfer of their manufacturing operations to Mexico or other Latin American countries should carefully analyze, among other factors:

• The ways, if any, in which the North American Free Trade Agreement (NAFTA), the Dominican Republic-Central American Free Trade Agreement (DR-CAFTA), and other free trade regimes (including Free Trade Zones and maquiladora and similar programs) may reduce the total cost of ownership. Businesses contemplating a move to Mexico might also consider President Felipe Calderon's National Infrastructure Program (NIP), a 5-year, US$141 billion initiative to improve Mexico's infrastructure (including the planned Punta Colonet port facility near Ensenada), which may, in the long-run, help manufacturers reduce the shipping and port congestion costs of the total cost of ownership.
• The cost of security of their personnel and property. Security-related businesses seem to be booming in in Latin America as kidnapping has become a greater threat in the region and drug traffickers have attempted to penetrate the legitimate export shipments of well-known companies with contraband, as I reported on August 8, 2008.
• Whether their Intellectual property can be adequately protected. Although the strength of intellectual property laws and their enforcement is subject to considerable variation in Latin America, a 2007 International Chamber of Commerce survey ranked Mexico as the 16th most unfavorable jurisdiction in the world for intellectual property protection (China ranked as the 1st most unfavorable jurisdiction, Brazil ranked as the 4th, and the U.S. ranked as the 27th).

Labels: China, Mexico

The Government of Taiwan has recently announced that it is considering easing restrictions on chipmakers investments in China. This follows Intel Corp’s 2007 announcement that in 2009 it will begin the production of 12 inch semiconductor wafers in China, and the announcement coincides with Taiwan’s hosting of Applied Materials Inc.’s president and CEO, Michael Splinter.

Taiwan has already authorized two Taiwanese semiconductor manufacturers to build factories in China. Taiwan’s easing of restrictions on investment in China for chipmakers seems to have been influenced by the lack of U.S. restrictions on Intel’s investment in China. President Ma noted the lack of U.S. objection to Intel’s production of 12 inch semiconductor wafers in China, which is particularly important since the U.S. is an active participant in the Wassenaar Arrangement. Though not a participating state in the Wassenaar Arrangement, Taiwan’s President Ma asserts that the principles of the Wassenaar Arrangement will be considered when easing controls on investment in China. Also, Taiwanese officials state that they do not fear losing 12 inch wafer fabrication to China because China lacks the environment for the development of these industries and crucial technologies will remain in Taiwan.

News reports indicate that Taiwan’s Ministry of Economic Affairs plans to relax restrictions on investments by local chipmakers in mainland China in three phases over three months.

1. In July, the ministry will boost the ceiling limit on China investment to 50 percent of the net worth of Taiwanese enterprises from the existing 40 percent.

2. In August, the economics ministry will ease restrictions on the industries Taiwanese enterprises are allowed to invest in China.

3. In September, the ministry will reveal a concrete timetable for liberalizing investment in Taiwan by mainland Chinese enterprises.

It seems that several related factors have led to Taiwan’s proposed easing of restrictions: (1) liberalization of U.S. controls on advanced semiconductor production abroad have put pressure on Taiwan to do the same; (2) concerns expressed by U.S. based Taiwanese chipmakers, such as Applied Materials Inc., when faced with their competition’s utilization of lower production costs in China; (3) Taiwan’s realization that if it wants to continue to attract investment from high tech industries, it must ease restrictions on investment in China; and (4) a desire to enhance relations between Taiwan and China following the establishment of direct flights and tourism.

Considering Taiwanese reports that Taiwanese investments in China have grown 30 percent from 2006 to 2007 to US$9.974 billion, businesses operating in Taiwan will want to keep a close eye on the easing of restrictions for investment in China. Though China lacks the environment and technologies for higher end chip production now, the migration of higher end production to China from other nations, e.g., the U.S., will require Taiwan to adjust its policies and regulations in order to keep its industry competitive.

Editors note: Thanks to a loyal reader for submitting this article.

Labels: China, Export Controls, Taiwan

The U.S. Attorney for the Eastern District of Virginia announced yesterday that Tai Shen Kuo of New Orleans, La. pleaded guilty to a one-count criminal information charging him with conspiracy to deliver national defense information to the People’s Republic of China (PRC). Kuo was arrested on Feb. 11, 2008 on a criminal complaint charging this same offense. Kuo faces up to life in prison when he is sentenced on Aug. 8, 2008.

According to a Statement of Facts filed with Kuo’s Plea Agreement, during March 2007 to February 2008 Kuo, a naturalized U.S. citizen, obtained national defense information from Gregg W. Bergersen, a Weapons Systems Policy Analyst at the Defense Security Cooperation Agency, an agency within the Department of Defense. The information pertained primarily to U.S. military sales to Taiwan and U.S. military communications security and was classified at the Secret level.

The Statement of Facts states that during the course of the conspiracy, Kuo cultivated a friendship with Bergersen, bestowing on him gifts, cash payments, dinners and trips to Las Vegas. Kuo also led Bergersen to believe that he would make Bergersen a part owner or an employee of a company selling U.S. defense technology to Taiwan after Bergersen’s retirement from government service.

Unbeknownst to Bergersen, Kuo passed along to an official of the government of the PRC the documents and information Bergersen had provided him. The PRC official directed Kuo to collect specific documents and information and paid him approximately $50,000 for completing those tasks.

On March 31, 2008, Bergersen pleaded guilty to conspiracy to deliver national defense information to a person not entitled to receive it. Bergersen is scheduled to be sentenced on July 11, 2008, and faces a maximum possible sentence of 10 years in prison.

Labels: China

Saturday's New York Times reported on the China International Exhibition on Police Equipment that was sponsored by China's Ministry of Public Security and recently held in Beijing. The article describes the large number of U.S. companies exhibiting at the show and that "the trade show coincided with increasing controversy in the United States over American exports of crime-control equipment to China."

The number of U.S. companies exhibiting at trade show has apparently attracted the interest of the Bureau of Industry and Security:

Asked about the abundant American gear shown at the police equipment trade show, Mario Mancuso, the under secretary of commerce for industry and security, replied with a one-sentence written statement: “Enforcing U.S. regulations on crime control equipment, including the Tiananmen Square Sanctions, is a top priority, and we continually review our regulations to ensure that they effectively support our national security and foreign policy.”

Another Commerce Department official said that questions from The New York Times about American equipment exhibited at the trade show had prompted the department to begin a review of whether American laws might have been broken. The official insisted on anonymity, in keeping with a department policy of not commenting on work that might lead to law enforcement actions.

The department has officials in Beijing and Hong Kong who look for violations of export control laws, but did not try to send anyone into the police equipment trade show.

Labels: BIS, China

The U.S.-China Economic and Security Review Commission will hold a public hearing in Washington, DC on May 20, 2008 to address "China's Proliferation Practices and the Development of its Cyber and Space Warfare Capabilities'' The hearing will examine China's proliferation activities, China's growing cyber space activities and capabilities as well as China's growing presence and capabilities in outer space. Further details on the hearing can be found in Monday's Federal Register.

Congress created the U.S.-China Economic and Security Review Commission in 2000 in the National Defense Authorization Act (Section 1238 of Pub. L. 106-398). The Commission is mandated by Congress to investigate, assess, evaluate and report to Congress annually on "the national security implications and impact of the bilateral trade and economic relationship between the United States and the People's Republic of China."

On a related note, USCC held a public hearing in New Orleans, Louisiana last week on the safety and trade issues related to imported seafood from China. The agenda for that hearing can be found here.

Labels: China

Tai Mak, the younger brother of convicted spy Chi Mak, was sentenced on Monday to 10 years in federal prison, the maximum prison sentence under the Arms Export Control Act ( 22 U.S.C. § 2778(c))

Tai Mak pleaded guilty in June 2007 to conspiring to export defense articles after his brother was convicted of conspiracy to export defense articles, operating as an agent of a foreign government and lying to a federal agent. The Los Angeles Times reported that the "probation report recommended a prison term of 6 1/2 years for Tai Mak, but U.S. District Judge Cormac Carney said a longer sentence was appropriate because the technical information he attempted to export, although unclassified, was sensitive nonetheless."

Labels: China, Export Controls

The An Yue Jiang, a vessel carrying arms from China to land-locked Zimbabwe, has apparently been ordered to return to China after being denied entry into ports in Mozambique, South Africa and Tanzania. The vessel was reportedly carrying three million rounds of AK-47 ammunition, 1,500 rocket-propelled grenades and more than 3,000 mortar rounds and mortar tubes destined for the Government of Zimbabwe.

In response to reports that China intends to fly the arms into Zimbabwe once the vessel returns to China, a State Department spokesman said today that:

In terms of the possibilities that it would be transported through other means, that is not something that I have heard. Certainly, though, the same thing applies: It’s not the method of transportation; it’s the fact that at this point in time, we don’t think it’s a good idea for anyone to be introducing additional weaponry into Zimbabwe, and certainly would hope that everyone that had contact with the Zimbabwean Government would encourage them to do the right thing in terms of releasing electoral results, honoring the will of the people, and being able to move forward with a transition to the results of that election.

Labels: China, Zimbabwe

The U.S.-China Economic and Security Review Commission (USCC) will hold a public hearing in Washington, DC on March 18, 2008 to address "China's Expanding Global Influence: Foreign Policy Goals, Practices, and Tools." This hearing is the third in a series of public hearings the Commission will hold during its 2008 report cycle to collect input from leading academic, industry, and government experts on the impact of the economic and national security implications of the U.S. bilateral trade and economic relationship with China. Further details on the USCC hearing can be found here.

The U.S.-China Economic and Security Review Commission was created by Congress in 2000 in order to monitor, investigate, and submit to congress an annual report on the national security implications of the bilateral trade and economic relationship between the United States and the People’s Republic of China, and to provide recommendations, where appropriate, to Congress for legislative and administrative action. The USCC focuses its work and study on the following eight areas: proliferation practices, economic transfers, energy, U.S. capital markets, regional economic and security impacts, U.S.-China bilateral programs, WTO compliance, and the implications of restrictions on speech and access to information in China.

The USCC is composed of 12 members, three of whom are selected by each of the Majority and Minority Leaders of the Senate, and the Speaker and the Minority Leader of the House. The Commissioners serve two-year terms.

Labels: China

Today the Washington, DC-based Heritage Foundation held a program entitled "Technology Leadership, Economic Power and National Security: Dual-Use Export Controls to China". The program featured a speech by Mario Mancuso, Undersecretary of Commerce for Industry and Security, followed by a lively panel discussion with critics and proponents of current U.S. policies on export controls to China.

The full text of Undersecretary Mancuso's speech on U.S. dual-use export controls and trade with China can be found on the BIS website.

A good summary of today's program can be found on the CNET news blog.

The video of the entire program will soon be posted on the Heritage Foundation's website.

The most newsworthy aspect of today's program was that Undersecretary Mancuso confirmed that BIS and other U.S. government agencies carefully reviewed, but ultimately rejected, the claims recently made by the Wisconsin Project on Nuclear Arms Control criticizing the selection of two of the five Chinese companies named as Validated End Users (VEUs). In its report, the Wisconsin Project stated that Shanghai Hua Hong NEC Electronics Company, Ltd. and BHA Aerocomposite Parts Co., Ltd. "are affiliated closely to China’s military industrial complex and to companies that have been punished by the U.S. government for proliferation or other improper export behavior."

Undersecretary Mancuso indicated that BIS is still reviewing a number of other applications for the China VEU program.

Labels: China, Export Controls

The Heritage Foundation is hosting a program on dual-use export controls to China in Washington, DC on February 20, 2008. The program will feature a keynote address by Mario Mancuso, Undersecretary of Commerce for Industry and Security, followed by a panel discussion with the following individuals:

• Peter Leitner, Ph.D., President, MaxWell USA, LLC and former Senior Strategic Trade Advisor, Office of the Secretary of Defense

• John Tkacik, Senior Research Fellow for China, Mongolia, and Taiwan, Asian Studies Center, The Heritage Foundation

• Edmund B. Rice, President, Coalition of Employment Through Exports

• Mark Groombridge, Ph.D., Senior Advisor for Policy Planning, Office of the Under Secretary for Industry and Security

Labels: China, Export Controls

The Wall Street Journal published an interesting article today entitled "Two U.S. Goals Collide: Free Trade, Security". The article describes how the stepped-up enforcement of laws restricting the release of sensitive technology exports to China and Iran can conflict with efforts to reform and streamline export controls.

Labels: BIS, China, Export Controls, Sanctions; Iran

The Justice Department today announced arrests in two separate cases involving in economic espionage charges involving China.

In the first case, Tai Shen Kuo, age 58, and Yu Xin Kang, age 33, both of New Orleans, Louisiana, and Gregg William Bergersen, age 51, of Alexandria, Virginia, were arrested on espionage charges related to the passage of classified U.S. government documents and information to the government of the People’s Republic of China (PRC).

Both Kuo and Kang were charged by criminal complaint with conspiracy to disclose national defense information to a foreign government, in violation of 18 U.S.C., Section 794(a) and (c). Bergersen was charged in a separate complaint with conspiracy to disclose national defense information to persons not entitled to receive it, in violation of 18 U.S.C., Section 793(d) and (g).

According to the Justice Department, the criminal conduct spanned a two-year period from January 2006 to February 2008. Kuo, a naturalized U.S. citizen and New Orleans businessman, gathered national defense information on behalf of the government of the PRC.

Working under the direction of an individual identified in the complaint affidavit only as “PRC Official A,” Kuo cultivated friendships with Bergersen and others within the U.S. government and obtained from them sensitive U.S. government information, including classified national defense information. Much of the information pertained to U.S. military sales to Taiwan.

Bergersen, a Weapons Systems Policy Analyst at the Arlington, Va.-based Defense Security Cooperation Agency, an agency within the Department of Defense, was charged with being the source of the classified information collected by Kuo. Kang, a citizen of the PRC and a Lawful Permanent Resident of the United States, served as a conduit of information between PRC Official A and Kuo.

The indictment accuses Chung of eight counts of economic espionage, one count of conspiracy to commit economic espionage, one count of acting as an unregistered foreign agent without prior notification to the Attorney General, one count of obstruction of justice, and three counts of making false statements to FBI investigators.

Chung, a native of China who is a naturalized U.S. citizen, held a Secret security clearance when he worked at Rockwell and Boeing on the Space Shuttle program. He retired from the company in 2002, but the next year he returned to Boeing as a contractor, a position he held until September 2006. The indictment alleges that he took and concealed Boeing trade secrets relating to the Space Shuttle, the C-17 military transport aircraft and the Delta IV rocket. Chung allegedly obtained the materials for the benefit of the PRC.

The case against Chung is related to the Chi Mak case. The indictment alleges that Chung and PRC officials exchanged letters that discussed cover stories for Chung’s travel to China and recommended methods for passing information, including suggestions that Chung use Chi Mak to transmit information.

Labels: China, Export Controls

In a signing ceremony held in Beijing as part of the 18th Joint Commission on Commerce and Trade (JCCT) between China and the U.S., representatives of the two governments today signed eleven agreements on a variety of import and export issues.

One of the agreements signed today was the "Guidelines for U.S.-China High-Technology and Strategic Trade Development," which outlined the importance of the two countries working cooperatively to achieve the mutual benefits of facilitating safe and secure, bilateral civilian high-technology trade.

The Guidelines, which were signed by Under Secretary of Commerce Mario Mancuso and MOFCOM Vice Minister Wei Jiangguo, were developed by the Bureau of Industry and Security (BIS) and MOFCOM under the U.S.-China High Technology and Strategic Trade Working Group (HTWG) that was established at the 2005 JCCT to further U.S.-China cooperation on export control and high technology trade issues.

Under the Guidelines, the Commerce Department and MOFCOM will 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 recognize 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.

A number of other agreements were signed during today's signing ceremony, including agreements on expanding U.S. exports to 14 "second-tier" cities in China, a Memorandum of Agreement on the Safety of Food and Feed, and a Memorandum of Agreement on the Safety of Drugs and Medical Devices. A complete list of the agreements that were signed can be found here.

Labels: BIS, China, Export Controls

Today the U.S. Department of Commerce issued a preliminary determination in the countervailing duty investigation on standard pipe from China finding that the Chinese government has been providing subsidies on standard pipe exported to the U.S. (this cases covers standard pipe with an outside diameter of 0.372 inches to 16 inches).

The Commerce Department found that Chinese pipe was subsidized by an average rate of 16.59 percent. Individual rates ranged from a high of 264.98 percent down to zero for one company. Most Chinese producers will be subject to a CVD duty of 16.59 percent. The Department of Commerce also applied critical circumstances, determining that this countervailing duty could be applied retroactively by 90 days.

This is only the second time the U.S. has imposed countervailing duties on Chinese exports and is the first U.S. countervailing duty case covering Chinese steel products. In the recent final determination in the countervailing duty investigation on coated free sheet paper from China, the Commerce Department decided for the first time that imports from China were countervailable.

The countervailing duty investigation was launched as a result of a petition filed by the Ad Hoc Coalition for Fair Pipe Imports From China and the United Steelworkers. The Ad Hoc Coalition includes Allied Tube & Conduit, IPSCO Tubulars, Inc., Northwest Pipe Company, Sharon Tube Company, Western Tube & Conduit Corporation, and Wheatland Tube Company. A preliminary determination in the companion antidumping investigation is due on January 3, 2008.

The Department of Commerce will make final determinations in both the countervailing duty and antidumping duty investigations in mid-March 2008.

Labels: Antidumping, China

As a follow-up to yesterday's announcement of the Validated End-User (VEU) Program for India, the Bureau of Industry and Security has posted additional information regarding the program on its website. The information includes the text of the rule, a fact sheet, the press release from the Secretary of Commerce and guidance for submitting to companies on submitting an advisory opinion request to be considered a VEU.

On a separate, but related note, a Commerce Department official today said that the first group of Chinese companies to be approved under the VEU Program will be announced and published in the Federal Register in the next few weeks. While BIS is currently taking more than the 30 calendar days to make VEU determinations, Supplement No. 9 to Part 748 of the EAR makes clear that the 30-day period applies to decisions made by the End-User Review Committee (ERC) after the final application is received and that the period during which the ERC is waiting for additional information from an applicant or potential validated end-user is not included in calculating the 30 calendar day deadline for the ERC's determination.

Labels: BIS, China, India

Earlier this week Senators Max Baucus (D-MT) and Orrin Hatch (R-UT) introduced the Trade Enforcement Act of 2007, legislation intended to "significantly bolster the U.S. government’s trade enforcement abilities." While the full text of the legislation has not been released, the press release issued by the Senate Finance Committee states that Baucus-Hatch proposal would make the following changes to U.S. trade laws:

• Amends section 701(a)(1) of the Tariff Act of 1930 to clarify that the Commerce Department has the authority to apply countervailing duties to nonmarket economies like China.
• Limits President's authority in China safeguard investigations by providing that the President may decline to provide relief only in extraordinary cases and only if the President determines that the relief would seriously harm U.S. national security or would have an adverse impact on the U.S. economy.
• Overrides the Federal Circuit’s Bratsk Aluminum decision by providing that the ITC must make its material injury determination in antidumping and countervailing duty cases without regard to whether other imports will likely replace imports from the country under investigation.
  
• Requires the United States Trade Representative (USTR) to provide an annual report to
  Congress identifying the most significant market access barriers to U.S. companies abroad
  and to take enforcement action to resolve them.
  
• Creates a Senate-confirmed Chief Enforcement Officer to investigate and prosecute trade enforcement cases. It also establishes an interagency Trade Enforcement Working Group to advise USTR and authorizes $5 million for USTR’s enforcement responsibilities.
• Sets up a WTO Dispute Resolution Settlement Commission of retired judges and international trade law experts to review WTO dispute settlement reports to determine whether they added to the United States’ obligations under the WTO or deviated from the standard of review.

Labels: Antidumping, China, Congress, Trade Policy

The Justice Department announced today that Xiaodong Sheldon Meng pleaded guilty to violating the Foreign Economic Espionage Act and the Arms Export Control Act by possessing a trade secret belonging to his former employer and "knowingly and willfully" exporting ITAR-controlled source code to China.

According to the Justice Department, this is the first time that a person has been convicted for "illegal exports of military-related source code".

The defendant faces a maximum prison term of 24 months and could be subject to a fine of $500,000 for the Economic Espionage Act conviction and a maximum fine of $1,000,000 on the Arm Export Control Act conviction.

Labels: China, Export Controls, ITAR

The price of going to the dry cleaners may be going up soon since M&B Metal Products Company, Inc., of Leeds, Alabama, today filed an antidumping petition on steel wire garment hangers from China.

Labels: Antidumping, China

The House Ways and Means Subcommittee on Trade announced that will hold a hold a hearing on legislative proposals relating to trade with China at 9 a.m. on August 2, 2007 in room 1100 of the Longworth House Office Building.

The hearing will focus on pending legislation relating to trade with China, including bills to address trade-distorting currency practices and legislation to modify U.S. trade remedy laws. The hearing will also address the safety of food imports into the U.S. and issues related to the application of sanitary and phytosanitary measures overseas.

The Trade Subcommittee has not yet announced the witnesses that will appear at the hearing. However, any individual or organization may submit a written statement for consideration inclusion in the printed record of the hearing.

Labels: China, Congress

USA Today recently published two very detailed, well-researched and informative articles on Chinese defense and commercial espionage activities in the U.S. and law enforcement's efforts to deal with these threats. Both of the stories were written by David J. Lynch, USA Today's former Beijing bureau chief.

The first story, "Law Enforcement Struggles to Combat Chinese Spying", contains detailed information on the FBI's surveillance, arrest and trial of Chi Mak, the Chinese-born engineer who was convicted on May 10th of trying to export U.S. defense technology to China.

The article notes that:

Beijing's goals aren't limited to traditional national security interests. The world's fastest-growing economy operates a shadowy technology bazaar where individuals offering trade secrets find a ready buyer. About one-third of all economic espionage investigations are linked to Chinese government agencies, research institutes or businesses, according to Bruce Carlson of the FBI's counterintelligence division, who leads the bureau's efforts to combat Chinese spying. Since 2001, the number of FBI investigations of suspected Chinese economic espionage cases increased 12%. "The basis for the whole program is money. People (in the USA) are looking to make a buck. China has money to spend," says Carlson

Left unchecked, such economic espionage threatens the foundations of U.S. prosperity, say current and former counterintelligence officials. In an era of globalization, competitors in low-wage developing countries can produce most products less expensively. The United States' economic advantage revolves around the sophisticated technology and unique know-how residing in corporate laboratories and research institutes. So that's where the corporate thieves and foreign spies concentrate their efforts.

Labels: China, Export Controls

The U.S. International Trade Commission (ITC) today made affirmative preliminary injury determinations in the antidumping and countervailing duty cases on circular welded carbon-quality steel pipe from China.

Vice Chairman Shara L. Aranoff and Commissioners Charlotte R. Lane and Irving A. Williamson voted in the affirmative. Chairman Daniel R. Pearson and Commissioner Deanna Tanner Okun made affirmative threat determinations. Commissioner Dean A. Pinkert did not participate in these investigations.

As a result of the ITC's affirmative determinations, the U.S. Department of Commerce will continue to conduct its antidumping and countervailing duty investigations, with its preliminary countervailing duty determination due on or about August 31, 2007, and its preliminary antidumping determination due on or about November 14, 2007.

Labels: Antidumping, China, Countervailing Duties

Space.com reports that China successfully launched an "ITAR-free" telecommunications satellite on July 5th. The Chinasat 6B telecommunication satellite, built by that was built by European-based Thales Alenia Space was launched from the Xichang Satellite Launch Center in southwest China's Sichuan Province by a Long March 3B launch vehicle.

The article notes that:

Thales Alenia Space officials say getting around U.S. State Department restrictions - generally referred to as ITAR, or International Traffic in Arms Regulations - with respect to China's rocket adds around six percent to the cost of a telecommunications satellite. That is because these satellites cannot take advantage of U.S. companies whose production lines are active and thus whose unit costs are reduced - in addition to the fact companies producing in U.S. dollars have an advantage over euro-based companies like Thales Alenia Space.

Even so, they said they have no intention of moving toward what they refer to as a fully "ITAR-free" product line. Such a move would help reduce the cost of ITAR-free satellites by increasing the production volume, but would run the risk of not being able to keep up with market demand because ITAR-free satellites rely on a supply chain that would have difficulty increasing throughput in the short term . . .

Labels: China, ITAR

U.S. Customs and Border Protection (CBP) today announced the names of the companies that have been selected to serve as third party validators in the Third Party Validation Pilot Program for purposes of conducting supply chain validations under the Customs Trade Partnership Against Terrorism (C-TPAT) in China. This one-year pilot program was necessary since the Chinese government has denied CBP’s request to allow CBP employees from performing validations in China. This program marks the first time that C-TPAT supply chain validations will be performed by commercial entities.

The following companies have been chosen by CBP to perform validations on CBP selected C-TPAT participants with operations in China:

• ABS Group
  
• CSCC/STR
  
• Cotecna
• Det Norske
• Veritas
  
• Intertek
• Omega Compliance
• Pinkerton
  
• Sharp Global
  
• SGS North America
• TUV Rheinland
  

Labels: C-TPAT, China, Customs

Another pair of countervailing and antidumping duty petitions have been filed against products from China. This time the target is laminated woven sacks, which are used in the packaging industry.

The petitions, which were filed with the Department of Commerce and the U.S. International Trade Commission (ITC), were filed on behalf of the Laminated Woven Sacks Committee, which consists of Bancroft Bag, Inc., Coating Excellence International, LLC, Hood Packaging Corporation, Mid-America Packaging, LLC and Polytex Fibers Corporation.

In the meantime, the Commerce Department yesterday announced its decision to initiate antidumping and countervailing duty investigations on imports of circular welded carbon quality steel pipe from China that were recently filed by several U.S. pipe companies. The ITC, which held its preliminary conference in this case yesterday, is scheduled to make its preliminary injury determination by July 23, 2007.

If the ITC determines that there is a reasonable indication that imports from China are materially injuring, or threatening material injury to, the domestic industry, the investigations will continue, and Commerce will be scheduled to make its preliminary countervailing duty determination in August 2007, and its preliminary antidumping duty determination in November 2007 (although these dates can be extended).

Labels: Antidumping, China, Countervailing Duties

Judging by the number of attendees participating in today's conference call with the Bureau of Industry and Security (BIS), there is a great deal of interest in the recently published China export control rule. More than 700 persons participated in the call, which included an overview of the provisions contained in the new rule and a discussion of the changes that were made to the proposed rule.

The final rule can be found at the following links:

• HTML version
• PDF version

Labels: BIS, China, Export Controls

The Bureau of Industry and Security will be holding a webinar for interested parties on the new China dual-use rule on Wednesday, June 20, 2007 at 2:00 p.m. EDT. The webinar will be hosted by BIS's Deputy Assistant Secretary Matt Borman and will include a question and answer session.

Interested participants must register on-line at the following link:
https://emenuapps.ita.doc.gov/ePublic/newWebinarRegistration.jsp?SmartCode=7Q3C

Labels: BIS, China, Export Controls

The Bureau of Industry and Security's Final China Rule, officially entitled "Revisions and Clarification of Export and Reexport Controls for the People's Republic of China (PRC); New Authorization Validated End-User; Revision of Import Certificate and PRC End-User Statement Requirements", was published today in the Federal Register.

The final rule can be found at the following links:

• HTML version
• PDF version
  

Labels: BIS, China, Export Controls

The media battle has begun on the final regulation imposing restrictions on the export of certain goods to China that was issued last Friday by the Bureau of Industry and Security (BIS).

Today's San Jose Mercury News contains an editorial written by recently confirmed Undersecretary of Industry and Security Mario Mancuso noting that "U.S. export control policy toward China should evolve to keep up with these new realities in a manner consistent with our broader foreign policy."

The editorial notes that "the share of U.S. exports subject to Commerce Department export controls is tiny, but important. About $230 million worth of high-tech exports to China - 1.3 percent - required a license in 2006."

The editorial concludes by stating that:

The publication of the updated China policy regulations marks an end and a beginning. It is the end of a long debate about how to fine-tune export controls to strike the right balance in our complex relationship with China. This policy is also the beginning of new, enhanced opportunities for U.S. businesses to boost legitimate trade with one of the most important new economies in the world.

"Joint efforts are needed to enhance China-U.S. trade cooperation and we hope the U.S. make positive and constructive efforts on the trade imbalance, including relaxing control of high-tech products export to China" and "If the United States wants to redress the trade imbalance, it should take concrete actions on high-tech products export."

Labels: BIS, China, Export Controls

Late this afternoon, the Bureau of Industry and Security (BIS) released the final text of the long-awaited China regulation revising export and reexport controls on certain U.S. products destined to China, creating the new VEU authorization for Chinese importers and clarifying MOFCOM End-User Statement requirements. The rule will take effect when it is published in the Federal Register early next week.

When drafting the final rule BIS took into account many of the public comments that were critical of various aspects of the proposed rule. In fact, nearly half of the 81-page rule consists of 45 specific responses to submitted comments. The following is a summary of the changes made in the final regulation from the proposed rule:

• BIS reduced the list Export Control Classification Numbers (ECCNs) subject to the new "military end-use" control from 47 to 31, based on military applicability, foreign availability, and commercial impact. This list of 31 ECCNs covers about 20 distinct product groups, and associated software and technology.
  

• Changed definition of “military end-use” to incorporation into a military item described
  on the U.S. Munitions List (USML), the International Munitions List (IML) or incorporation into items listed on the Commerce Control List ending in "A018" or for the
  "use", "development" or "production" of such military items.

• Clarified the scope of the military end-use control by adding definitions of the terms "operation", "installation", "maintenance" and "deployment".
  

• BIS broadened the scope of items that may be denied for making a "direct and significant" contribution to China's military capabilities. Specifically, it revised the license application review policy for items controlled for national security reasons to provide a presumption of denial for license applications to export, reexport or transfer items that would make a "direct and significant contribution" to the China's military capabilities. The rule also allows BIS to review license applications involving items controlled for chemical/biological, missile technology and nuclear nonproliferation reasons to determine if they make such a contribution.

• The procedures for applying for the Validated End-User (VEU) Authorization program for Chinese end-users were clarified and BIS created an inter-agency committee to rule on requests submitted by VEU applicants.

• The dollar threshold for U.S. exporters to obtain China Ministry of Commerce (MOFCOM) End-User Statements for goods requiring an export license to China was raised from $5,000 to $50,000.

• Text of the Final Rule [pdf]
  

• Q & A for Exporters [pdf]

Labels: BIS, China, Export Controls

By Matthew Apfel*

Although there were some positive results achieved during the second round of the Strategic Economic Dialogue (SED) talks between the U.S. and Chinese Governments last month in Washington, DC, it is clear that both sides came away from the discussions frustrated. This frustration does not arise merely from the fact that little or no progress was made to address currency valuation or significant trade-related matters. The frustration seems to arise more from the fact that the Bush Administration has a long-term plan (which is more in sync with the Chinese outlook) that is irreconcilable with the short-term "fixes" that an increasingly protectionist Congress is pursuing. Adding to that complexity is that the Chinese Government can not internalize the reasons why the U.S. government is so divided; Chinese tradition is not based upon democratic politics where the leader is unable to speak with a single powerful voice.

It is in this context that the Bush Administration has called for increased dialogue with China, while at the same time implementing new policies on the importation of Chinese goods. The Administration has increasingly come under Congressional pressure to take harsher action in terms of counteracting Chinese trade subsidies. As a result, the Commerce Department recently announced that it would alter its 23-year old policy of not applying countervailing duties to non-market economies and issued a preliminary affirmative countervailing duty determination on coated free sheet paper from China.

Furthermore, there was no real progress made during the SED on U.S. export controls on dual-use technology. The Chinese argue that U.S. export controls are a mechanism which acts as an "unfair trade barrier" and "blocks China's access to advanced technology and blunts the U.S. comparative advantage in selling advanced products to China." Before, during and after the second round of SED talks in Washington, the Chinese have labeled export control restrictions as a "major" issue they want resolved through negotiation. Many in the Bush Administration however, do not see that the economic benefits of removing such controls outweighs the military necessity of retaining them. Indeed, Bureau of Industry and Security (BIS) officials have stated that only a very small fraction of U.S. exports to China required an export license and BIS is poised to issue in the near future a regulation amending the Export Administration Regulations to impose export controls on certain categories of dual-use goods intended for the Chinese military.

Despite these actions, it seems questionable whether the Bush Administration is prepared to label China a "currency" manipulator and even more unlikely that the U.S. Trade Representative will accept the recent petition submitted by members of Congress to the U.S. Trade Representative under section 301 of the Trade Act of 1974 alleging that China's currency is undervalued and manipulated. Treasury Secretary Paulson and his counterparts seem to take the view that any action by Congress to label the Chinese Government's alleged currency manipulation as a trade subsidy will only aggravate U.S.-China relations and will lead only to negligible short term gains. Indeed, according to a recent article in The Economist, "it is true that a stronger, more flexible Yuan makes sense for China, because it would help shift spending towards imports and would give Beijing's policymakers greater control over interest rates making it easier to prevent the economy from overheating. But the effect on America would be small."

If Congress nevertheless succeeds in its attempt to pass a Chinese currency-related bill, such as the one currently being drafted in the Senate that would pressure the U.S. Treasury to intervene in global markets to adjust China's currency, China likely will react sharply. In a statement made after the U.S. lodged a complaint against China at the World Trade Organization over intellectual property rights, Vice Premier Wu Yi said China will "fight to the end" and will not tolerate sanctions. Although China has been warning the Bush Administration and Congress to utilize restraint in its "unilateralist protectionism," those warnings may evolve into an outright trade war which would have disastrous effects for both countries in the long run.

*Matthew Apfel is a third year law student at George Washington University. He can be reached at msapfel@law.gwu.edu.

Labels: China, Trade Policy

The second meeting of the U.S.-China Strategic Economic Dialogue (SED) begins tomorrow in Washington and export controls, including the pending "China Rule" that will soon be issued by the Bureau of Industry and Security (BIS), are high on the meeting's agenda.

As has been widely reported, Wu Yi, China's Vice-Premier, last week published an op-ed piece in the Asian Wall Street Journal urging the U.S. to "relax export controls to boost the competitiveness of American companies, reverse the trend of dwindling market share of American hi-tech products in China, and reduce its trade deficit with China."

Not surprisingly, Reuters reported today that "China's frequent call for lifting U.S. export controls to trim trade imbalances -- expected to be repeated at high-level economic talks this week -- is likely to fall on deaf ears. . . ."

Labels: BIS, China, Export Controls