Antitrust Lawyer Blog

Commentary on Current Developments

President Trump announced an agreement to remove the tariffs imposed on steel and aluminum imports from Canada and Mexico as part of the renegotiated North American Free Trade Agreement (“NAFTA”).  The current tariffs included a 25 percent rate on steel imports and 10 percent on aluminum imports. In response to the United States’ steel and aluminum tariffs, Mexico and Canada launched their own retaliatory tariffs on a wide range of products, including pork, whiskey, and orange juice.

The Trump Administration imposed the tariffs under Section 232 of the Trade Expansion Act of 1962, which allows the President to impose restrictions on certain imports if the Department of Commerce finds that such imports “threaten or impair national security.” Section 232 gives the Executive wide latitude to make such determinations, and such decisions need not receive Congressional approval.  Indeed, such broad authority caused Congress to debate the merits of Section 232 determinations, and a recent bill was introduced in the Senate to remove the national security determinations from the Department of Commerce to the Department of Defense. Such efforts have stalled.

According to a statement from the United States Trade Representative, the countries will focus on monitoring and enforcement mechanisms to prevent surges of imports of steel and aluminum.  A joint statement from the US and Canada indicated that both countries will strive to prevent transshipment from third countries, such as China, and otherwise prevent the importation of products that are unfairly subsidized or sold at dumped prices.

Last week, the Trump Administration raised tariffs to 25% on $200 billion worth of goods that previously were subject to 10% tariffs.  The increased rate in tariffs were brought on as a result of accusations that the Chinese delegation to the trade negotiations back-tracked on previous agreements, and the increase was meant to ratchet up pressure on China to make a deal.

This week, China retaliated by raising tariffs on $60 billion of U.S. goods.  The goods targeted already were subject to some tariffs.  Now 5,140 tariff lines will be subject to an increased rate, including 2,493 cotton, machinery and grain products that are going to be subject to a 25% tariff from a previous 10% tariff rate; and 1,078 products, including aircraft parts, optical instruments and certain types of furniture that will be subject to a 20% tariff rate from a previous 10% tariff rate; and 974 products, including corn flour and wine, will have a 10% tariff rate – up from 5%.

In response to the retaliatory tariffs from China, President Trump tweeted: “. . . China should not retaliate-will only get worse!”  The proposed rates will take effect on June 1.

The last few weeks brought a flurry of developments regarding international trade.  Two petitions recently were filed with the US International Trade Commission (“ITC”).

On April 30th, Hirsh Industries filed an antidumping (“AD”) and countervailing duty (“CVD”) petition on imports of certain vertical metal file cabinets from China.  The petition covers metal filing cabinets containing extendable file storage elements having a width of 25 inches or less and having a height greater than its width.  The petition alleges dumping margins of 120.48 percent and 196.79 percent. The Department of Commerce will decide whether to initiate its investigation on May 20, 2019.

On May 8, Cambria Company LLC filed AD/CVD petitions on imports of certain quartz surface products from India and the Republic of Turkey.  The scope of the investigation is fairly broad, and includes quartz surface products such as slabs, including tabletops, countertops, bar tops, vanity tops, tabletops, tiles, etc. The petitioner alleges a 344.11 percent dumping margin against India, and an 89.38 percent dumping margin against the Republic of Turkey.  The Department of Commerce will decide whether to initiate its investigation on May 28, 2019.

When USTR announced tariffs on imports from China on July 6, 2018, it also announced the procedures and deadlines for seeking exclusions from such duties. Late last month, USTR announced that it would grant exclusions from tariffs for a second set of Chinese imports (“List 2”).  The second round of exclusions cover about 87 separate exclusion requests.

All persons could submit requests for exclusion of a particular product, why the exclusion was sought, along with other information such as the quantity and value of the Chinese-origin product.  The USTR then weighed several factors in determining whether to grant the exclusions, including: whether the product was only available in China, whether severe economic harm would result from the duties, and whether the products are important to Chinese industry.

The tariff exclusions from List 2 included about 87 exclusion requests, spanning three ten-digit HTS categories and thirty other product categories.  The exclusions will be dated retroactively to the date when USTR announced the tariffs, July 6, 2018.  Fortunately, any importer can take advantage of the relevant exclusion even if it was not the one that applied to the exclusion.

A lawsuit commenced by the American Institute for International Steel (“AIIS”) regarding the constitutionality of Section 232 before the Court of International Trade (“CIT”) has been decided.  A three-judge panel decided that Section 232 was not unconstitutional.

The plaintiffs argued that Section 232 of the Trade Expansion Act of 1962, as amended, did not properly delegate authority to the Executive Branch because there is no “intelligible principle” under which Section 232 authorizes presidential action.

CIT determined that Section 232 did, in fact, meet the “intelligible principle” standard to uphold Section 232’s constitutionality.  In reaching its decision, the CIT relied on a 1976 case, Fed. Energy Admin. v. Algonquin SNG Inc., 426 U.S. 548 (1976), where the Supreme Court upheld a similar challenge against Section 232, finding that Section 232 “establishes clear preconditions to Presidential action. . . .”

The rising prices of existing and new brand prescription drugs could have serious consequences for tax payers and the 44 million seniors who rely on Medicare.  In order to rein in those costs, it’s vital for the Administration to encourage the use of generic drugs and biosimilars.

While Congress has been grabbing the headlines by holding numerous hearings and introducing various legislative proposals aimed at lowering drug prices, the Trump Administration has introduced some consumer-friendly changes to Medicare that should change the way drugs are priced for seniors and encourage the use of generics and biosimilars.  First, the Centers for Medicare & Medicaid Services (“CMS”) proposes to change how insurance plans and PBMs conduct drug utilization management and structure drug formularies.  Second, the U.S. Department of Health and Human Services (“HHS”) proposes to eliminate the rebates that pharmacy benefit managers (“PBMs”) receive from drug manufacturers and to encourage that any rebates go directly to seniors at the point of sale.

These significant reforms are necessary as the stakes are high.  Since 2006, Medicare Part D spending has more than doubled to roughly $100 billion per year in 2017, and it is expected to climb as a growing and aging population of baby boomers becomes Medicare eligible.  Today, despite making up a modest proportion of Part D prescriptions, brand drugs account for some 84% of total Part D spending.  Generics, meanwhile, which make up most of the Part D prescriptions, account for only 16% of the total spending and saved the Part D program approximately $82 billion in 2017.

On February 4, 2019, the American Institute of Steel Construction, LLC filed antidumping (“AD”) and countervailing (“CVD”) petitions with the U.S. Department of Commerce (“DOC”) and the U.S. International Trade Commission (“ITC”).

Under U.S. law, a domestic industry can petition the government to initiate an AD investigation into the pricing of an imported product to determine whether it is sold in the United States at less than fair value (i.e., “dumped”).  A domestic industry can also petition the initiation of a CVD investigation of alleged subsidization of foreign producers by their government.  Additional duties can be imposed if DOC determines that imported goods are dumped and/or subsidized, and if the ITC also determines that the domestic industry is materially injured or threatened with such injury by reason of subject imports.

If the ITC and DOC make preliminary affirmative determinations, U.S. importers will be required to post cash deposits in the amount of the AD and/or CVD duty rates for all entries on or after the date DOC’s preliminary determination is published in the Federal Register.  The preliminary AD/CVD rates can change in the final DOC determination, especially if foreign producers and their governments participate fully in the investigations.

Senate Democrats Aim at Strengthening Antitrust Enforcement

On Friday, February 1, Senator Amy Klobuchar re-introduced two bills aimed at strengthening antitrust enforcement.

The co-sponsors include Senators Ed Markey (Dem-Massachusetts), Richard Blumenthal (Dem-Connecticut), Dick Durbin (Dem-Illinois) and Corey Booker (Dem-New Jersey).

On January 11, 2019, Congressman Peter Welch and Francis Rooney, members of Congress, wrote a letter to the Federal Trade Commission (“FTC”), urging the Commission to investigate Bristol-Myers Squibb’s (“BMS”) acquisition of Celgene.

The letter asks the FTC to examine how the transaction may harm competition with respect to horizontal overlaps and even complementary drugs.  Specifically, the letter points out that the acquisition allows BMS to increase its drug portfolio and leverage over pharmacy benefit managers (“PBMs”) when negotiating preferred drug placement on formularies and bundled discounts that can create “rebate walls”.

The transaction gives the FTC an opportunity to investigate a questionable contracting practice in the pharmaceutical drug industry known as a “rebate wall” or “rebate trap”.  Payors such as PBMs and health insurers obtain rebates on prescription drugs from pharmaceutical manufacturers that have actually inflated the price of drugs and stifled the ability of rival drug manufacturers to effectively compete.  This practice is recognized by both the administration and industry players as anticompetitive.  Department of Health and Human Services Secretary Alex Azar has noted that rebate walls can prevent competition and new entrants into the system. Moreover, major drug manufacturers such as Pfizer and Shire have filed antitrust suits challenging rebate walls as antitrust violations.  In theory, rebates could have a positive impact on the prescription drug market if they led to lower prices and benefit consumers.  But, in practice, this is simply not the case.  Rebate walls distort the workings of the free market, result in higher drug prices, and reduce patients’ access to affordable branded drugs.

The government shutdown is likely to delay FTC merger reviews, but the Department of Justice’s (“DOJ”) Second Request investigations will likely proceed as they normally do albeit with less staff.  Although the FTC’s Premerger Notification Office (PNO) and the DOJ’s Premerger Office remain open during regular hours to receive HSR filings, the FTC PNO will be operating with a limited staff and is unavailable to provide guidance about the administration of the HSR Act.  All merging parties have to wait the full initial waiting period before obtaining antitrust clearance, because the PNO is not granting early termination of waiting periods during the shutdown.

The staff attorneys who run investigations and negotiations at the Commission are out of the office, which means that parties are simply waiting while everything is on hold.  HSR waiting periods will continue to run during a government shutdown.  DOJ and FTC staff will continue to review premerger filings and conduct investigations to determine whether to challenge reported transactions under the antitrust laws.  Second Requests will continue to be issued and, if engaged in merger litigation, FTC and DOJ attorneys will notify opposing parties and the courts of the government shutdown and attempt to negotiate timing extensions and suspensions. If such relief is not available, they will continue to litigate the matter.

The DOJ and the FTC both issued contingency plans indicating that certain employees connected to antitrust enforcement within the Antitrust Division of the DOJ and the Bureau of Competition at the FTC will be excepted from the furlough and will continue to conduct antitrust enforcement activities.